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Stock Prices And Exchange Rates In Australia: Are Commodity Prices The Missing Link?

Listed author(s):
  • Nicolaas Groenewold

    (UWA Business School, The University of Western Australia)

  • James E H Paterson

    (UWA Business School, The University of Western Australia)

Registered author(s):

    The relationship between stock prices and exchange rates is an important topic of long standing. But there are still significant gaps in our knowledge of this area, not least, the ambiguity about the sign of the effect of a change in one of these variables on the other. While there are many possible reasons for this ambiguity, one which we explore in the Australian context in this paper is the omission of commodity prices. We show that a bivariate relationship which omits commodity prices performs badly but that once commodity prices are added to the relationship, our results are plausible and robust. We also throw light on the commodity-currency issue and show that the link from the exchange rate to commodity prices is stronger and more consistent than that in the opposite direction.

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    Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 11-07.

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    Length: 26 pages
    Date of creation: 2011
    Handle: RePEc:uwa:wpaper:11-07
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