On Exchange Rate Changes and Stock Price Reactions

Christopher, K.; Kao, G. Wenchi

doi:10.1111/j.1468-5957.1990.tb01196.x

Cited by 179 publications

(99 citation statements)

References 7 publications

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“…This impact depends upon nature of host economy, whether export dominated or import dominated. Positive impact of exchange rate appreciation is been observed in export dominant economy while negative effect in import dominant economy (Ma and Kao, 1990). Devaluation of home currency improves export market of country (Aggarwal, 1981) by increase trading volume due to lower cost to its customer in international market.…”

Section: International Scenariomentioning

confidence: 99%

FDI Inflow, Stock Market Performance and Exchange Rate: Indian Scenario

Kunal

Phani²

2017

ijafr

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In this research work, macro level analysis has been conducted to assess impact of foreign direct investment (FDI) capital inflow in Indian economy. This study is focused on causality relationship between FDI inflow, stock market performance and foreign exchange rate. This framework is used for policy implications of relationship between three variables. These macro-economic variables are linked with different policies. Causality tests performed on these variables are further used for policy implications. Impact of change in exchange rate on changes in FDI inflow is the least significant followed by impact of changes in FDI inflow on changes in sensitivity index of stock exchange (SENSEX). The third least significant relationship is observed between changes in FDI inflow on change in exchange rate. These relationships are implied to "Impossible Trinity" framework to assess preference for monetary, fiscal and foreign exchange rate policies. It is observed that improving performance of stock market (SENSEX) should be on priority followed by exchange rate. These finding have implications on fiscal policy, monetary policy and exchange rate. The increase in return of stock market and favourable exchange rate will help in increasing FDI inflow in Indian economy. Stock market performance depends on daily transactions by investors and they are regulated only, not controlled. Supply of foreign currency in India is controlled by the Reserve Bank of India (RBI), who assesses the supply conditions of the market and attempts to manage exchange rate in favour of Indian economy. In other words, the exchange rate can be controlled by having control on supply of foreign currency in domestic market. Hence, there is possibility of having fixed exchange rate and target band of exchange rate.

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Section: International Scenariomentioning

confidence: 99%

FDI Inflow, Stock Market Performance and Exchange Rate: Indian Scenario

Kunal

Phani²

2017

ijafr

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“…Agarwal [1], according to their share price and exchange rate data for empirical research, found that there was a positive correlation between the two. Ma and Kao [2] believes that a country's foreign trade will determine the relationship between the exchange rate and stock prices, empirical results show that there is a generally negative correlation between the exchange rate and stock prices in the export-oriented countries, and there is a positive relationship in the import-oriented country. Granger [3], using the econometric methods of unit roots and cointegration, to prove the correlation between the exchange rate and stock price.…”

Section: Introductionmentioning

confidence: 96%

Empirical Studies of the Relationship between RMB Exchange Rate and Stock Prices

An¹

2017

dtssehs

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Studies of the relationship between Exchange rate and stock price volatility after the 2008 international financial crisis, preventing financial risks of China, and consummating capital markets and foreign exchange mechanism is theoretically and practically significant. The classification based on the causality between price and exchange rate, puts the financial crisis exchange rate and Shanghai Composite index into the assumption that there is a causal relationship, from January 2008 to June 2014, between RMB exchange rate index and empirical analysis based on rolling correlation analysis method. There is a studies result that, there is contemporaneous correlation between the real exchange rate of RMB against the U.S. dollar and the trend of Shanghai composite index, and there is an advance correlation from Shanghai composite index's volatility relating to currency volatility. This article based on TodaYamamoto causality test, found that there is an interrelationship of Granger causality between the actual fluctuation of exchange rate and the Shanghai composite index, and there is no Granger causality between the trend of actual exchange rate and the trend of Shanghai composite index movements.

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“…Th e exchange rate can result in either a positive or a negative impact on stock returns. Ma and Kao (1990) suggest that for an export-dominated country currency depreciation is expected to have a positive impact on domestic stock market returns. Moreover, Johnson and Soenen (1998) argue that a depreciation of the currency makes imports more costly and results in a higher domestic price level, which is expected to have a negative impact on stock market returns.…”

Section: A Review Of the Research On The Influence Of Impact Indicatomentioning

confidence: 99%