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The association between stock market and exchange rates for advanced and emerging markets – A case study of the Swiss and Polish economies

  • Gurgul, Henryk
  • Lach, Łukasz

This paper investigates the differences in structures of causal relationships between stock and currency markets for advanced and emerging economies on the example of Switzerland and Poland. The bootstrap–based linear causality analysis as well as nonlinear causality tests were conducted for both considered countries. Results of linear causality analysis indicated that for Swiss economy the portfolio approach seems to be the right pattern while for Poland the traditional and portfolio approaches were found to be appropriate. On the other hand the results of nonlinear analysis provided solid basis to claim that for Switzerland both approaches are acceptable while for Poland nonlinear causality was not reported in any direction. Results of nonlinear causality test were generally unchanged after GARCH(1,1) filtration. The existence of strong causal links from stock to currency markets of both economies seems to have a practical application for investors helping to hedge their portfolios against currency shocks.

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File URL: http://mpra.ub.uni-muenchen.de/52238/1/MPRA_paper_52238.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52238.

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Date of creation: 2012
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Publication status: Published in Betriebswirtschaftliche Forschung und Praxis 2.64(2012): pp. 2012
Handle: RePEc:pra:mprapa:52238
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Web page: http://mpra.ub.uni-muenchen.de

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  1. Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
  2. Hiemstra, Craig & Jones, Jonathan D, 1994. " Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation," Journal of Finance, American Finance Association, vol. 49(5), pages 1639-64, December.
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  15. Henfryk Gurgul & lukasz Lach, 2009. "Linear versus nonlinear causalityfor dax companies," Operations Research and Decisions, Wroclaw University of Technology, Institute of Organization and Management, vol. 3, pages 27-46.
  16. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
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