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Dynamic Relations between Stock Returns and Exchange Rate Changes

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  • A. Can Inci
  • Bong Soo Lee

Abstract

We re†examine the relation between stock returns and exchange rate changes in five major European countries (France, Germany, Italy, Switzerland, and the UK), the USA, Canada, and Japan by taking into account dynamic effects, including lagged changes of variables, and employing causal relations. We find that lagged exchange rates have a significant impact on stock returns. We find evidence of Granger causality from exchange rate changes to stock returns, and also for the reverse direction. Furthermore, the dynamic relation has been more significant and stronger in recent years and recession periods than in early periods and expansion periods.

Suggested Citation

  • A. Can Inci & Bong Soo Lee, 2014. "Dynamic Relations between Stock Returns and Exchange Rate Changes," European Financial Management, European Financial Management Association, vol. 20(1), pages 71-106, January.
    • Handle: RePEc:bla:eufman:v:20:y:2014:i:1:p:71-106
    DOI: 10.1111/j.1468-036X.2011.00621.x
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