Modelling stock price–exchange rate nexus in OECD countries: A new perspective

Salisu, Afees A.; Ndako, Umar B.

doi:10.1016/j.econmod.2018.05.010

Cited by 47 publications

(39 citation statements)

References 78 publications

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“…When nonlinearities are not Portfolio Balance Approach to Asymmetries, Structural Breaks and Financial Crisis: Testing a Model for Nigeria Adekoya put into consideration, it is evident from these results that the PBT does not only hold for Nigeria, it is stable regardless of structural shifts. This validation is corroborated by studies such as Dahir et al (2016), Walid et al (2011), Salisu and Ndako (2017), among others. 1.000 (0.318) 0.118 (0.731) *, **, and *** indicate significance at 1%, 5% and 10% respectively.…”

Section: Full Sample Estimation Resultssupporting

confidence: 75%

“…The asymmetric tendency in the PBT assessment for the OECD countries is also supported by Salisu and Ndako (2017). They not only validate the PBT for the Euro and non-Euro areas of the OECD, but further establish the effect of asymmetries in both long-run and short-run.…”

Section: Empirical Literaturesupporting

confidence: 63%

“…Another common theoretical back up for the interaction between exchange rate and the stock market indices is the Portfolio Balance Theory (PBT) due to Branson (1983) and Frankel (1983). In this case, stock price is the predictor of exchange rate, and this line of empirical consideration has been also attention in the past few years (see Aydemir and Demirhan, 2009; Diamandis and Drakos, 2011; Chkili and Nguyen, 2014;Salisu and Ndako, 2017 authors to cause significant alterations to the relationship between many economic variables.…”

Section: Theoretical Literaturementioning

confidence: 99%

“…On the other hand, Sui and Sun (2015) observe from their analysis that in the short-run, spillover is significantly found to run from exchange rates to stock returns, and not the other way round. However, certain studies have taken a diversion from the linearity assumption by providing empirical assessment of the response of exchange rate to stock price asymmetries (see Walid et al, 2011;Salisu and Ndako, 2017). The theoretical explanation was first offered by Dieci and Westerhoff (2013).With strong evidence, the study brilliantly argues that the prediction of exchange rate with asymmetric stock price will provide authentic and more robust information on how to properly hedge stock and currency risks for effective portfolio diversification.…”

Section: Empirical Literaturementioning

confidence: 99%

“…Based on historical evidence for Nigeria, the effect of the 2008 global financial crisis began to be significantly felt in the early period of the same year. 5 Therefore, the pre-crisis period analyzed in this study starts from September, 1997 to December, 2007, while January 2998 to 4 Various crises whose impact have been assessed on the exchange rate-stock price relationship include 1994/1995 Mexican crisis, 1997 Asian crisis, 2008 global financial crisis and 2010 European debt crisis (see Salisu and Ndako, 2017). 5 Although a few studies believe that the 2008 global financial crisis began in Nigeria earlier than 2008 (see Aliyu, 2009, for instance), it has been more widely believed that its impact on the financial markets strictly began at that period (see Abraham, 2016 Benjamin andFatile, 2019;Zubair, 2013).…”

Section: Data and Sourcesmentioning

confidence: 99%

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Portfolio Balance Approach to Asymmetries, Structural Breaks and Financial Crisis: Testing a Model for Nigeria

Adekoya

2020

CBN-JAS

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This study tests the Portfolio Balance Theory (PBT) for Nigeria for the period starting from September 1997 to September 2018. It extends the hypothesized linear inverse relationship between exchange rate and stock price to include asymmetries and structural breaks. It further examines the impact of the 2008 global financial crisis on the PBT to determine its stability after the crisis. The full sample results show that the PBT holds for Nigeria and asymmetries and structural breaks matter in the nexus between stock price and exchange rate. However, the impact of stock price on exchange rate diminished in the long-run with the advent of the 2008 global financial crisis, thus eroding the relative consistency of the PBT after the crisis. The sensitivity of the Nigerian exchange rate to stock price changes calls for the strengthening of the stock market performance through relevant policies including the enhancement of portfolio diversification and risk-hedging assets. The role of asymmetries should not also be jettisoned in predicting exchange rate with stock prices to obtain accurate forecast results.

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Section: Full Sample Estimation Resultssupporting

confidence: 75%

Section: Empirical Literaturesupporting

confidence: 63%

Section: Theoretical Literaturementioning

confidence: 99%

Section: Empirical Literaturementioning

confidence: 99%

Section: Data and Sourcesmentioning

confidence: 99%

See 3 more Smart Citations

Portfolio Balance Approach to Asymmetries, Structural Breaks and Financial Crisis: Testing a Model for Nigeria

Adekoya

2020

CBN-JAS

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Effect of economic uncertainty on public health expenditure in Economic Community of West African States: Implications for sustainable healthcare financing

Iheoma¹

2022

Health Science Reports

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This study investigates the dynamic effect of economic uncertainty on public health expenditure in the Economic Community of West African States region.The investigation is motivated by the recent volatilities in the global economy in the face of increasing demand for adequate funding of health systems in the region, and the need to fill the existing gap in the literature. The study employs the panel autoregressive distributed lag model to express the theoretical relationship between public health expenditure per capita, economic uncertainty and population growth rate, and estimates the model parameters using the mean group and the pooled mean group estimators, after accounting for stationarity and cointegration. Results reveal that on the aggregate, economic uncertainty and population growth are significant determinants of per capita health spending in the long run. When the countries are disaggregated by income groups, evidence suggests that in low-income countries, economic uncertainty is negatively associated with health spending in the short run, while a growing population reduces health spending per capita in the long run. In lower-middleincome countries, economic uncertainty increases health spending in the short run, but reduces it in the long run as uncertainty persists, while population growth negatively impacts health spending in the long run. We conclude that the dependence on public funding of the health system in the region appears unsustainable. Thus, health financing policies need to explore alternative funding mechanisms that entrench cost-sharing between the public and private financiers.

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A firm level analysis of asymmetric response of U.S. stock returns to exchange rate movements

2020

Self Cite

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The extant studies on stock returns-exchange rate nexus have been suspected of aggregation bias, we therefore resolve to revisit the nexus using firm-level data while also accounting for asymmetry. We utilize stock price data covering 326 firms listed in S&P500 index and organized into 11 sectors. We examine the probable asymmetric response of these firms to exchange rate movements using the nonlinear panel ARDL method which simultaneously accounts for any inherent asymmetry and heterogeneity effects and suitable for large N and Large T panels. We establish that asymmetry exists in the stock returnsexchange rate nexus predominantly in the short run. We further show that exchange rate appreciation (depreciation) produces primarily positive (negative) effects on stock returns. We also find that the positive impacts overwhelm the negative impacts in magnitude and statistical significance. Thus, returns on investment in U.S. stocks differ significantly between currency appreciation and depreciation and by implication investors seeking to maximize returns need to exercise some level caution when confronted with sharp swings in exchange rate particularly during turbulent periods. While the results are robust to data frequency and to an extent, the choice of foreign currency, they are sensitive to different market conditions.

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Modelling stock price–exchange rate nexus in OECD countries: A new perspective

Cited by 47 publications

References 78 publications

Portfolio Balance Approach to Asymmetries, Structural Breaks and Financial Crisis: Testing a Model for Nigeria

Portfolio Balance Approach to Asymmetries, Structural Breaks and Financial Crisis: Testing a Model for Nigeria

Effect of economic uncertainty on public health expenditure in Economic Community of West African States: Implications for sustainable healthcare financing

A firm level analysis of asymmetric response of U.S. stock returns to exchange rate movements

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