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Stock prices, exchange rates and causality in Malaysia: a note

  • Azman-Saini, W.N.W.
  • Habibullah, M.S.
  • Law, Siong Hook
  • Dayang-Afizzah, A.M.

This article contributes to the debate on stock prices and exchange rates in Malaysia. It examines causal relations using a new Granger non-causality test proposed by Toda and Yamamoto (Journal of Econometrics, 66, 225-50, 1995). Among the findings of interest, there is a feedback interaction between exchange rates and stock prices for the pre-crisis period. The results also reveal that exchange rates lead stock prices for the crisis period. In a financially liberalized environment, exchange rates stability is important for stock market well-being.

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File URL: https://mpra.ub.uni-muenchen.de/656/1/MPRA_paper_656.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 656.

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Date of creation: Oct 2006
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Handle: RePEc:pra:mprapa:656
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  1. Granger, Clive W. J. & Huangb, Bwo-Nung & Yang, Chin-Wei, 2000. "A bivariate causality between stock prices and exchange rates: evidence from recent Asianflu," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(3), pages 337-354.
  2. 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.
  3. DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, vol. 60(2), pages 423-33, March.
  4. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-71, December.
  5. Jun Nagayasu, 2000. "Currency Crisis and Contagion; Evidence From Exchange Rates and Sectoral Stock Indices of the Philippines and Thailand," IMF Working Papers 00/39, International Monetary Fund.
  6. Issam Abdalla & Victor Murinde, 1997. "Exchange rate and stock price interactions in emerging financial markets: evidence on India, Korea, Pakistan and the Philippines," Applied Financial Economics, Taylor & Francis Journals, vol. 7(1), pages 25-35.
  7. John Wei, K. C. & Liu, Yu-Jane & Yang, Chau-Chen & Chaung, Guey-Shiang, 1995. "Volatility and price change spillover effects across the developed and emerging markets," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 113-136, May.
  8. Ramon Moreno & Gloria Pasadilla & Eli Remolona, 1998. "Asia's financial crisis: lessons and policy responses," Pacific Basin Working Paper Series 98-02, Federal Reserve Bank of San Francisco.
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