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On the dynamic link between stock prices and exchange rates: evidence from Romania

  • Horobet, Alexandra
  • Ilie, Livia

The theoretical linkages between exchange rates and stock prices are microeconomic as well as macroeconomic in nature and may be observed on the short- and long-run. The paper examines the interactions between the exchange rates and stock prices in Romania, after 1997, taking into account the change in the monetary regime occurred in 2005 – the shift towards inflation targeting. The analysis uses bivariate cointegration and Granger causality tests, applied on daily and monthly exchange rates and stock prices data collected over the 1999 to 2007 period. Three types of exchange rates are used: the nominal effective exchange rates of the Romanian leu, the bilateral nominal exchange rates of the leu against the US dollar and the euro, and the real effective exchange rates of the leu. In terms of stock prices, the BET and BET-C indices of the Bucharest Stock Exchange are used, denominated in the local currency.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6429.

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Date of creation: Oct 2007
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Handle: RePEc:pra:mprapa:6429
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  1. Martin Glaum & Marko Brunner & Holger Himmel, 2000. "The DAX and the Dollar: The Economic Exchange Rate Exposure of German Corporations," Journal of International Business Studies, Palgrave Macmillan, vol. 31(4), pages 715-724, December.
  2. Kim, Ki-ho, 2003. "Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model," Review of Financial Economics, Elsevier, vol. 12(3), pages 301-313.
  3. Foresti, Pasquale, 2006. "Testing for Granger causality between stock prices and economic growth," MPRA Paper 2962, University Library of Munich, Germany, revised 2007.
  4. Kent D Miller & Jeffrey J Reuer, 1998. "Firm Strategy and Economic Exposure to Foreign Exchange Rate Movements," Journal of International Business Studies, Palgrave Macmillan, vol. 29(3), pages 493-513, September.
  5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  6. Entorf, Horst & Jamin, Gösta, 2002. "Dance with the Dollar: Exchange Rate Exposure on the German Stock Market," Darmstadt Discussion Papers in Economics 18198, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  7. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  8. Kiymaz, Halil, 2003. "Estimation of foreign exchange exposure: an emerging market application," Journal of Multinational Financial Management, Elsevier, vol. 13(1), pages 71-84, February.
  9. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  10. Bartram, Sohnke M., 2004. "Linear and nonlinear foreign exchange rate exposures of German nonfinancial corporations," Journal of International Money and Finance, Elsevier, vol. 23(4), pages 673-699, June.
  11. Phylaktis, Kate & Ravazzolo, Fabiola, 2005. "Stock prices and exchange rate dynamics," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1031-1053, November.
  12. Alexandr Èerný & Michal Koblas, 2008. "Stock Market Integration and the Speed of Information Transmission," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(01-02), pages 2-20, January.
  13. MacDonald, Ronald & Kearney, Colm, 1987. "On the specification of granger-causality tests using the cointegration methodology," Economics Letters, Elsevier, vol. 25(2), pages 149-153.
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