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Do exchange rate changes have symmetric or asymmetric effects on stock prices?

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  • Bahmani-Oskooee, Mohsen
  • Saha, Sujata

Abstract

Several macro variables have been identified as determinants of stock prices and exchange rate is among them. Exchange rate changes can affect different firms differently depending on whether they are export oriented or they use heavily imported inputs. Therefore, the overall effects of exchange rate changes on an aggregate stock price index could be in either direction. Previous research assumed that exchange rate changes have symmetric effects on stock prices. In this paper after introducing nonlinearity into adjustment process and after using Nonlinear ARDL approach to cointegration and error-correction modeling combined with monthly data from Brazil, Canada, Chile, Indonesia, Japan, Korea, Malaysia, Mexico, and the U.K., we show that exchange rate changes have asymmetric effects on stock prices, though the effects are mostly short-run.

Suggested Citation

  • Bahmani-Oskooee, Mohsen & Saha, Sujata, 2016. "Do exchange rate changes have symmetric or asymmetric effects on stock prices?," Global Finance Journal, Elsevier, vol. 31(C), pages 57-72.
    • Handle: RePEc:eee:glofin:v:31:y:2016:i:c:p:57-72
    DOI: 10.1016/j.gfj.2016.06.005
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    More about this item

    Keywords

    Exchange rates; Stock prices; Nonlinear ARDL; Asymmetry;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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