Is the liberalization policy effective on improving bivariate cointegration of current accounts, foreign exchange, stock prices? Further evidence from Asian markets

Abstract

Abstract-This paper fist examines three set of bivariate cointegrations between any two of current accounts, stock markets, and currency exchange markets in ten Asian countries. Furthermore, we examined the effect of country characters on this bivariate cointegration. Our findings suggest that for three sets of cointegration test, each sample country at least exists one cointegration. India consistently exhibited a bi-directional causal relationship between any two of three indicators. Unlike Pan et al. (2007) and Phylaktis and Ravazzolo (2005), we found that such cointegration is influenced by three characteristics: capital control; flexibility in foreign exchange rates; and the ratio of trade to GDP. These characteristics are the result of liberalization in each Asian country. This implies that liberalization policies are effective on improving the cointegration between any two of financial markets and current account for ten Asian countries.

Can Macroeconomic Variables Explain Managed Fund Returns? The Australian Case

“…Changes in exchange rates are adjusted to reflect the relative inflation level only when the PPP holds. Numerous studies demonstrate that the trade deficit is a source of systematic risk affecting stock returns (Thorbecke, 1994;Kitamura, 2009;Kuo, 2013). Several studies also find that the exchange rate affects the performance of the stock market (Ma & Kao, 1990;Agrawal et al, 2010;Altin, 2014).…”

“…of a country. Numerous studies demonstrate that the trade deficit is a source of systematic risk affecting stock returns (Thorbecke, 1994;Kitamura, 2009;Kuo, 2013). Changes in the current account can signal changes in financial uncertainty, which in turn affects market returns.…”