Revisiting the dynamic relationship between exchange rates and stock prices in BRICS countries: A wavelet analysis

Dahir, Ahmed Mohamed; Mahat, Fauziah; Razak, Nazrul Hisyam Ab; Bany‐Ariffin, A.N.

doi:10.1016/j.bir.2017.10.001

Cited by 79 publications

(40 citation statements)

References 24 publications

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“…Another cause may be a rise in exports by developing countries, which boosts profits and drives up stock prices. From the analysis of Gavin (1989) and Dahir et al (2018), we found negative relation while in the study of Barakat et al (2015), Megaravalli and Sampagnaro (2018), we found positive relation with the stock exchange. We discovered that the results for India were contradictory, with both positive (Megaravalli and Sampagnaro, 2018) and negative (Dahir et al, 2018) outcomes.…”

Section: Findings and Discussionmentioning

confidence: 58%

“…From the analysis of Gavin (1989) and Dahir et al (2018), we found negative relation while in the study of Barakat et al (2015), Megaravalli and Sampagnaro (2018), we found positive relation with the stock exchange. We discovered that the results for India were contradictory, with both positive (Megaravalli and Sampagnaro, 2018) and negative (Dahir et al, 2018) outcomes. When we looked into it further, we observed that the 2008 financial crisis had an effect on the exchange rate, which contributed in conflicting findings.…”

Section: Findings and Discussionmentioning

confidence: 58%

“…They found asymmetric effect only for short-run bivariate model and multivariate model. Dahir et al (2018) examined the relation of exchange rate for the countries of BRICS. In the study, they found that Brazil, Russia had a positive relation in the medium and long term while India had a negative relation.…”

Section: Inflation and Stock Market Movement In Various Countriesmentioning

confidence: 99%

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Impact of macroeconomic variables on the performance of stock exchange: a systematic review

Verma

Bansal

2021

IJOEM

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PurposeThis paper aims to identify various macroeconomic variables that affect the stock market performance of developed and emerging economies. It also investigates the effect of these factors on the stock markets of both economies. The impact of these variables on broad market indices and sectoral indices is investigated and compared too.Design/methodology/approachThe publications for the study were retrieved from databases such as Emerald Insight, EBSCO, ScienceDirect and JSTOR using the keywords “Macroeconomic variables” and “Stock market” or “Stock market performance.” The result demonstrated a growing corpus of scholarly work in the domain of stock market. The study was carried out separately for each macroeconomic indicator. Given a large number of articles under consideration, the authors began by reading the titles and abstracts of all publications to identify those that were relevant. The papers are evaluated in Excel and the articles for review range from 1972 to 2021.FindingsThe authors found that gross domestic product (GDP), FDI (Foreign Direct Investment) and FII (Foreign Institutional Investment) have a positive effect on both emerging and developed economies’ stock market while gold price has a negative effect. Interest rates had a negative impact on both economies except for a few developing countries. The relationship with oil prices was positive for oil exporting countries while negative for oil importing countries. Inflation, money supply and GDP are the macroeconomic variables that have the same effect on sectoral indices as they do on broad market indices. The impact was sector-specific for the remaining variables.Research limitations/implicationsThis paper gives an overview of relation and effect covering variety of macroeconomic variables and stock market indices. Still, there is a scope for further research to analyze the effect on thematic, strategy and sectoral indices. A longer time horizon with new variables, such as bank deposit growth rate, nonperforming assets of banks, consumer confidence index and investor sentiment, can be studied using high-frequency data. This research may help stakeholders adopt and manage their policies during a crisis or economic slump.Practical implicationsThis study will assist investors, researchers and educators in the fields of economics and finance in understanding how macroeconomic factors affect the stock market. Furthermore, this study can guide in portfolio diversification strategy across multiple sectors by examining the impact of macroeconomic factors specific to sectoral indices. This paper provides insight into society and researchers since it integrates a number of macroeconomic variables and their interaction with the stock market. It may also help pension funds and mutual fund firms to hedge their funds and allocate equity portfolios.Originality/valueWith respect to India, this study looked at new macroeconomic variables and sectors. It contrasted the impact of these variables in developed and developing economies. The effect of broad and sectoral stock indexes was also investigated and compared. The authors examined how these variables responded during crisis and economic downturns by using articles from a longer time frame. This research also looked into how changing the frequency of data for the variables altered stock performance. This paper emphasized the need for more research into thematic, strategy and broad market indices, such as small-cap and mid-cap indices.

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Section: Findings and Discussionmentioning

confidence: 58%

Section: Findings and Discussionmentioning

confidence: 58%

Section: Inflation and Stock Market Movement In Various Countriesmentioning

confidence: 99%

See 1 more Smart Citation

Impact of macroeconomic variables on the performance of stock exchange: a systematic review

Verma

Bansal

2021

IJOEM

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“…For example, Sui and Sun [68] found a strong connection between exchange rates and stock returns in Brazil, Russia, India, China, and South Africa during the financial crisis. Dahir et al [69] also realized exchange rates and stock returns are positively correlated in the medium and long term. However, Bahmani-Oskooee and Saha [70] investigated data from 24 countries and concluded that the effects of exchange rate changes on stock prices could be asymmetric.…”

Section: Hypothesismentioning

confidence: 93%

Macroeconomic Factors and Stock Price Crash Risk: Do Managers Withhold Bad News in the Crisis-Ridden Iran Market?

et al. 2021

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The present study aims to investigate the effects of macroeconomic variables on stock price crash risk in the economically uncertain conditions of Iran’s market. This study also seeks to examine whether there is a significant relationship between some firm characteristics and falling stock prices. The sample of the study includes 152 Iranian companies listed on the Tehran Stock Exchange (TSE) between 2014 and 2019. Furthermore, the research model has been estimated using a fixed effect pattern, and the DUVOL (down-to-up volatility) measure is defined as a proxy for stock price crash risk. Consistent with our expectations, the results show that there is a positive association between the inflation and unemployment rates and stock price crash risk, whereas the GDP and exchange rates are correlated negatively with crash risk. In fact, with rising inflation and unemployment, on the one hand, the amount of savings and the purchasing power of the people have decreased, and on the other hand, it has reduced the sales of companies due to the increase in the pricing of manufactured products. In Iran’s economically uncertain situation due to sanctions, managers are trying to overstate financial performance and conceal bad news to have better access to financing; so, when the total amount of bad news accumulated over time reaches a tipping point, it leads to a stock crash. It also appears that when the exchange rate rises, Iranian investors prefer to buy companies’ shares to maintain the purchasing power of their money. Outcomes also confirm that larger firms and those with higher Return on Assets (ROA) are more sensitive to crash risk.

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“…They also find that crude oil price has negative relationship with exchange rates for oil-exporting countries. In the context of Brazil, Russia, India, China, and South Africa (BRICS) countries, Dahir et al (2018) also find negative relation where stock returns is leading over exchange rates in India. Tiwari et al (2013) find causal relationships between the oil price and the real effective exchange rate of Indian rupee at higher time scales only.…”

Section: Literaturementioning

confidence: 95%

The Time–Frequency Relationship between Oil Price, Stock Returns and Exchange Rate

Das

2021

J Bus Cycle Res

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The concept of time scales is essential for modeling financial decisions. This paper investigates time-frequency relationships across time scales between stock market returns, crude oil prices and exchange rates by applying wavelet analysis technique over the period 1999 to 2021. We find evidence of several strong co-movements between oil price and stock market and between oil price and foreign exchange rate in India. Each of these associations is linked with some important macroeconomic events. This implies economic shocks in developed market have a spillover effect on Indian market. The phase relationships indicate stock returns are in phase with oil prices and exchange rates are in out of phase with oil prices. We find that the impact of volatility at lower scale has a short term effect on the variables. Further, the wavelet coherency at high scale has slower changes with long term effect on the relationship between the variables of our interest. These results are useful for investors aiming specific time horizon of their investment and preferences, for portfolio managers and in risk assessment. Understanding the leading and lagging relationships will also help in business cycle based investing by detecting the subsequent business cycle fluctuations and forecasting the trend.

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Revisiting the dynamic relationship between exchange rates and stock prices in BRICS countries: A wavelet analysis

Cited by 79 publications

References 24 publications

Impact of macroeconomic variables on the performance of stock exchange: a systematic review

Impact of macroeconomic variables on the performance of stock exchange: a systematic review

Macroeconomic Factors and Stock Price Crash Risk: Do Managers Withhold Bad News in the Crisis-Ridden Iran Market?

The Time–Frequency Relationship between Oil Price, Stock Returns and Exchange Rate

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