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The Relation between National Stock Prices and Effective Exchange Rates: Does It Affect Exchange Rate Exposure?

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  • Korhonen Marko

    (Department of Economics, University of Oulu, P.O. Box 4600, FIN-90014 Oulu, Finland)

Abstract

There is twofold contribution in this paper. First, by using monthly data for 16 industrialized countries for the period 1973–2011 we find evidence of time-varying cointegration relationship between effective exchange rates and national stock market indices. Second, we present that the cointegration relationship affects exchange rate exposure. We propose that the exchange rate exposure effect changes when the connection between the exchange rate and stock market emerges. This is a new result and reflects importance of these markets’ joint role in international risk sharing.

Suggested Citation

  • Korhonen Marko, 2015. "The Relation between National Stock Prices and Effective Exchange Rates: Does It Affect Exchange Rate Exposure?," Global Economy Journal, De Gruyter, vol. 15(2), pages 241-256, July.
    • Handle: RePEc:bpj:glecon:v:15:y:2015:i:2:p:241-256:n:3
    DOI: 10.1515/gej-2014-0057
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    More about this item

    Keywords

    exchange rate exposure; stock market returns; ARDL; cointegration; threshold;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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