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The dynamic relationship between stock market indexes and foreign exchange

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  • Maria Teresa Medeiros Garcia
  • Ana Catarina Gomes Rodrigues

Abstract

his empirical study analyses the dynamic relationship between the FTSE100 Index and the EuroSTOXX50 Index and the USD/EUR and USD/GBP exchange rates, from January 2007 to April 2017. The Johansen co-integration tests suggest that these variables have a long-term relationship.The Granger causality test was conducted through the use of VECM equations, showing that the FTSE100 and the EuroSTOXX50 Index both have a causal feedback relationship. A unidirectional relationship was found between the FTSE100 Index stock prices and the USD/EURexchange rate.The presence of a unidirectional relationship between the USD/GBP exchange rate and FTSE100 and EuroSTOXX50 Index stock priceswas also detected.

Suggested Citation

  • Maria Teresa Medeiros Garcia & Ana Catarina Gomes Rodrigues, 2019. "The dynamic relationship between stock market indexes and foreign exchange," Working Papers REM 2019/90, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp0902019
    as

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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_090_2019.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    G15; C22; C51; C52;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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