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The Relationship Between Stock Prices and Exchange Rates Evidence from Developed and Developing Countries

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  • Onder Buberkoku

Abstract

This study analyses the relationship between exchange rates and stock prices in some developed and developing countries, namely Japan, Canada, England, Switzerland, Germany, Australia and Singapore, S. Korea, and Turkey. The study examines the long-run relationship between these market variables by using Johansen (1988) and Engle-Granger (1987) cointegration tests and shortrun dynamic relationship by using Granger causality test, a variance decomposition analysis and an impulse response analysis. The findings indicate that there is uni-directional causality from stock prices to exchange rates in Canada and Switzerland, while no causal relationship is found in Japan, Germany, England, and Australia. Moreover, there is uni-directional causality from exchange rates to stock prices in Singapore and S. Korea, whereas uni-directional causality from stock prices to exchange rates is found in Turkey. These findings are also robust with respect to various methods used. In addition, the results show that there is no long-run relationship between the two examined variables in any studied country except Singapore

Suggested Citation

  • Onder Buberkoku, 2013. "The Relationship Between Stock Prices and Exchange Rates Evidence from Developed and Developing Countries," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 13(52), pages 1-16, April.
    • Handle: RePEc:bor:iserev:v:13:y:2013:i:52:p:1-16
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    File URL: http://www.borsaistanbul.com/datum/imkbdergi/EN/isereview52.pdf
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    References listed on IDEAS

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    Cited by:

    1. NEIFAR, MALIKA & HarzAllah, AMIRA, 2020. "Can Canadian Stock market provide complete hedge against Inflation ?," MPRA Paper 99093, University Library of Munich, Germany.
    2. Rabia Luqman & Rehana Kouser, 2018. "Asymmetrical Linkages between Foreign Exchange and Stock Markets: Empirical Evidence through Linear and Non-Linear ARDL," JRFM, MDPI, vol. 11(3), pages 1-13, August.
    3. Ahmed S. Alimi & Oladotun D. Olaniran, 2019. "Monetary Policy and the Stock Price - Exchange Rate Nexus: New Insights from Influential African Economies," Asian Development Policy Review, Asian Economic and Social Society, vol. 7(2), pages 66-79, June.
    4. Mohsen Bahmani-Oskooee & Sujata Saha, 2018. "On the relation between exchange rates and stock prices: a non-linear ARDL approach and asymmetry analysis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(1), pages 112-137, January.

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    More about this item

    Keywords

    Stock prices; exchange rates; Johansen (1988); Engle-Granger (1987) cointegration tests; Granger causality; variance decomposition; impulse response analysis; developed countries; developing countries;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F30 - International Economics - - International Finance - - - General

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