Co-integration analysis between stock prices & exchange rates: Evidence from Pakistan

Abstract

Objective: The objective of the study is to investigate the relationship between stock prices represent by (KSE100 index) and Exchange rates in case of Pakistani economy. Methodology: Quarterly data from 1993 to 2010 has been used for the study & cointegration technique applied to examine the relationship between KSE 100 index & Pakistani currency in terms of rupees per dollar. Findings: The results suggest that the residual from the OLS regression are non-stationary at level using critical values suggest by Davidson and MacKinnon (1993) so there is no co-integrated relationship found between stock prices & exchange rates. Conclusion: study can be concluded with the view that there is no long term relationship between stock prices & exchange rates.

FX Volatility Impact on Indian Stock Market: An Empirical Investigation

“…The above studies certify the wellestablished relation between FX rates and stock market. But the results of this study slightly disagree with the outcomes of Kutty (2010), Mlabo et al (2013), Muasya and Kipyego (2014), Rafiq and Hasan (2016) and Mwambuli and Xianzhi (2016) as they found only a short-run relation with these variables. This research strongly emphasizes that the exchange rate volatility has a direct impact on stock market and the volatility shocks are quiet persistent.…”

“…This relation was further confirmed by another study conducted in 21 emerging market economies (Akdogu & Birkan, 2016). Rafiq and Hasan (2016) confirmed a short-run relationship between exchange rate and stock prices by examining the context of Pakistan economy. The short-run relation between these variables in Turkish economy was further confirmed by Mwambuli and Xianzhi (2016).…”