Interaction between Stock Prices and Exchange Rate in Emerging Market Economies

Kahraman, Serpil; Birkan, Ayşe Özden

doi:10.5430/rwe.v7n1p80

Cited by 13 publications

(7 citation statements)

References 29 publications

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“…The above findings will contribute to the existing literature by approving the view points of Frankel and Rodriguez (1975), Adjasi et al (2008), Agrawal, Srivastav and Srivastava (2010), Ahmad (2012), Hajilee and Nasser (2014), Frederick and Ijirshar (2015), Ngan (2016), Yaday (2016), Akdogu and Birkan (2016), Najaf and Najaf (2016) and Sichoongwe (2016). The above studies certify the wellestablished relation between FX rates and stock market.…”

Section: Garch (11) Modelsupporting

confidence: 64%

“…Sichoongwe (2016) also found that there is a negative relationship between exchange rate volatility and stock market returns in Zambia. 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.…”

Section: Review Of Literaturesupporting

confidence: 62%

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FX Volatility Impact on Indian Stock Market: An Empirical Investigation

Aravind¹

2017

Vision: The Journal of Business Perspective

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Examining the interrelationship between currency market volatility and stock market volatility will create abundant trading opportunities to the investors irrespective of whether the return of one market is moving up or down. This research work intended to examine how the exchange rate volatility between Indian rupee and foreign currencies, such as US dollar, euro, Japanese yen and British pound, can influence the return and volatility of the Indian stock market. The research data extensively cover daily price observations of foreign currencies as well as Nifty index for 1500 days. The generalized autoregressive conditional heteroskedasticity (GARCH) is used for modelling foreign exchange (FX) rates volatility and its impact across Indian stock market. The mean equation of the model confirms that any appreciation in Indian rupee will lead to channelization of more funds towards stock market. Further, it is validated that the volatility shocks between the stock market and currency market are quite persistent. Besides the model also points that the volatility attributes are very strong between US dollar and Nifty. The Granger causality test wrap up with a finding that the volatility shocks of British pound have a causal relation with Nifty return. The result of this study will help the domestic as well as foreign investors in favour of portfolio diversification decisions. The study also spots that the policymakers can indirectly intervene into stock market through monitory policy measures.

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Section: Garch (11) Modelsupporting

confidence: 64%

Section: Review Of Literaturesupporting

confidence: 62%

FX Volatility Impact on Indian Stock Market: An Empirical Investigation

Aravind¹

2017

Vision: The Journal of Business Perspective

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“…As a result of both the Angle-Granger and Johansen method being used, a link between the two variables could not be detected in the long term, which is valid for all four countries. Akdogu & Birkan(2016) conducted causality tests to determine the direction of the relationship between stock index and exchange rates in 21 developing country markets during the period covering the years 2003-2013. A statistically significant causality relation was found in 13 out of 21 countries as a result of the analysis done with the monthly selected data set.…”

Section: Literature Surveymentioning

confidence: 99%

Empirical Analysis of Foreign Exchange Rate and Stock Price Indices: Evidence From Emerging Countries

Çetiner

Çilingirtürk²,

Zehir³

2018

Finans Ekonomi Ve Sosyal Araştırmalar Dergisi

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The main aim behind this research is to find out the exchange rate risk on stock price indices return volatility of 22 emerging countries. The study is based on the monthly stock index and foreign exchange rate in relation the USD of the related 22 countries' data between January 2000 and December 2016. Both fixed effect and random effect models were tested. The fixed effect model assumes that stocks are correlated with country specific exchange rates while the random effect model assumes residuals are uncorrelated with the country specific exchange rates. Furthermore, country specific variance on stock index return was tested using the Breusch and Pagan LR test, and it was found that there is no country specific volatility, which means that their variance is zero. This means that there are not any country specific effects in the model, which can be interpreted to mean that there is no medium or long-term arbitrage possibilities with international transactions. Finally, it was observed that exchange rate changes had a negative impact on stock index returns. The previous month's stock market movement or random term did not have any impact on the current market returns according to AR and MA terms. Moreover, international foreign exchange market and stock market cooperate consistently, uncausing any arbitrage possibility on monthly basis. Daily models might detect short-term arbitrage failures in international transactions. Furthermore, there are asymmetric GARCH models to test the gain and loss volatility on transactions.

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“…As stock prices and foreign exchange rates act as barometers of the financial system and the state of the economy (Akdogu & Birkan, 2016). If the causal relationship between this two above mentioned variables can be established and the sequence of financial market phenomena behind instability can be recognized, it could help policy makers to avoid large scale financial instability and enhance the contribution of the financial markets to sustainable growth and development.…”

Section: Introductionmentioning

confidence: 99%

“…There is extant literature on the relationship between stock prices and exchange rates in both developed and emerging economies but the results have been diverse and inconclusive as regards which of the models is most applicable to, or predominant within an economy (Richard et al 2009). Some group of studies (Adaramola, 2012;Akdogu & Birkan, 2016;Bala & Hassan, 2018) establishes that it is the exchange rate that causes the movements in stock prices, thereby supporting the flow oriented model. On the other hand, studies by Aydemir and Demirhan (2009), Richards, Simpson and Evans (2009), Kutty (2010), Umer, Sevil and Kamisli (2015), and Huy (2016) provide empirical evidence that causation runs from the stock price to exchange rate which implies the support of the stock oriented model.…”

Section: Introductionmentioning

confidence: 99%

Untitled

2019

ajbfmr

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The study investigated the interaction between exchange rate and stock prices movement in Nigeria for the period of 1986 to 2017. Exchange rate, gross domestic product, inflation and interest rate were used to determine the interaction between exchange rate and stock prices movement proxied as all share index in Nigeria. The study employed unit root test was used to test the stationarity of the variables, the Auto Regressive Distribution Lag (ARDL) test to test for the presence of long run relationship among the variables, Error Correction model to show the rate at which short-run inconsistencies are being corrected and incorporated into the long-run equilibrium relationship. The result of the study found that the exchange rate has a negative and significant relationship with all share price; gross domestic product has negative and significant interaction with all share index; inflation rate revealed a negative and insignificant interrelationship with all share index; interest rate displayed positive and statistically insignificant nexus with all share price in Nigeria; a uni-directional causality flowed from ASI to INT. It was concluded that the exchange rate has a weak interrelationship with stock prices movement under study review in Nigeria. The study recommended that a conducive business environment should be stimulated by the government in order to enhance the real sector and boost the economy through an increase in savings and investment.

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Interaction between Stock Prices and Exchange Rate in Emerging Market Economies

Cited by 13 publications

References 29 publications

FX Volatility Impact on Indian Stock Market: An Empirical Investigation

FX Volatility Impact on Indian Stock Market: An Empirical Investigation

Empirical Analysis of Foreign Exchange Rate and Stock Price Indices: Evidence From Emerging Countries

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