On the Linkages between Stock Prices and Exchange Rates: Evidence from the Banking Crisis of 2007-2010

Caporale, Guglielmo Maria; Hunter, John; Ali, Faek Menla

doi:10.2139/ssrn.2248684

Cited by 8 publications

(6 citation statements)

References 22 publications

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“…Thus far the existing studies for the causality between stock prices and exchange rates have mainly concentrated on developed and developing economies in the Americas, Europe and Asia regions (e.g. Ajayi, Friedman, & Mehdian, 1998;Ajayi & Mougouė, 1996;Caporale, Hunter, & Menla Ali, 2014;Hatemi-J & Irandoust, 2002;Hatemi-J & Roca, 2005;Lean et al, 2011;Tsagkanos & Siriopoulos, 2013). Not much attention has been given to Middle-East economies (e.g.…”

Section: Review Of Past Literaturementioning

confidence: 99%

A note on the interaction between stock prices and exchange rates in Middle-East economies

Parsva

Tang

2017

Economic Research-Ekonomska Istraživanja

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Ample studies have been conducted to analyse the interaction between stock prices and exchange rates in developed and developing countries. However, studies on Middle-East economies are limited. Moreover, many existing studies test for Granger causality in a bi-variate setting which in turn leads to conflicting causality results. The goal of this study is to investigate the causal interaction between stock prices and exchange rates empirically in Iran, Kuwait, Oman and Saudi Arabia from January 2004 to December 2011. Among four Middle-East economies, we find that stock prices and exchange rates have bi-directional causality in Iran, Oman and Saudi Arabia, but the variables do not interact in Kuwait. Additionally, the recursive causality tests reveal that these relationships are stable over the analysis period. Therefore, stock prices and exchange rates affect each other at least in Iran, Oman and Saudi Arabia.

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Section: Review Of Past Literaturementioning

confidence: 99%

A note on the interaction between stock prices and exchange rates in Middle-East economies

Parsva

Tang

2017

Economic Research-Ekonomska Istraživanja

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“…Concretely the results suggest that in 80 % of the countries under investigation, periods of tight money are associated with contemporaneous declines in stock market value. Caporale et al (2014) examined relationship between stock market prices and Exchange rates in the USA, the UK, Canada, Japan, the euro area and Switzerland, using data on the banking crisis between 2007 and 2010. They found causality-in-variance between stock returns and exchange rate changes in the US and the opposite direction in the euro area and Japan, while there is evidence of bidirectional feedback in Switzerland and Canada.…”

Section: Review Of Literaturementioning

confidence: 99%

The Effect of Macroeconomic Factors on Stock Prices of Swiss Real Estate Companies

Ligocká

Pražák

Stavárek

2017

Acta Univ. Agric. Silvic. Mendelianae Brun.

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Stock values of companies listed on stock exchanges could be influenced by many factors. The aim of this article is to examine existence and character of relationship between stock prices of selected Swiss real estate companies and macroeconomic fundamentals (GDP, interest rate, price level). The existence of long-run equilibrium relationship between stock prices and macroeconomic fundamentals is tested with the Johansen cointegration. The short run dynamics between the variables is examined by Vector Error Correction modelling and the Granger causality test. During the period 2005 -2014 we revealed a long-run equilibrium for five of the six analyzed stocks. We also confirmed that macroeconomic variables and the interest rate in particular, can explain a long-run behavior of stock prices. By contrast, macroeconomic variables are usually short in explanation of short-run dynamics of stock prices. However, the results differ substantially among the stocks and, hence, they prevent us from drawing any general conclusion for the entire real estate sector in Switzerland.

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“…The relationship is, however, country specific and evidence from emerging markets shows that changes in the exchange rates causes changes in the stock prices (Liang et al, 2015;Gay Jr, 2011;Moore & Wang, 2014). Interestingly, results differ even in advanced economies, with the US and United Kingdom (UK) providing evidence that suggests unidirectional causality from the stock market to the exchange rate showing the influence of the US and UK stock markets on exchange rate movements (Caporale, Hunter & Ali, 2014). However, Caporale et al (2014) also showed that Switzerland and the euro area demonstrated bidirectional causality, suggesting that stock market and exchange rate movements influence each other (Caporale et al, 2014).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Interestingly, results differ even in advanced economies, with the US and United Kingdom (UK) providing evidence that suggests unidirectional causality from the stock market to the exchange rate showing the influence of the US and UK stock markets on exchange rate movements (Caporale, Hunter & Ali, 2014). However, Caporale et al (2014) also showed that Switzerland and the euro area demonstrated bidirectional causality, suggesting that stock market and exchange rate movements influence each other (Caporale et al, 2014). When using a long-run co-integration model, a long-run causal relationship from stock market to exchange rate has been observed in the European Union (EU), while only a short-run relationship existed in the US during the financial crisis of 2008(Tsagkanos & Siriopoulos, 2013.…”

Section: Literature Reviewmentioning

confidence: 99%

Stock market returns and exchange rate movements in a multiple currency economy: the case of Zimbabwe

Sibanda

2015

J. econ. financ. sci.

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This study seeks to provide new evidence on the stock market and exchange rate relationship in Zimbabwe, a country that does not have its own sovereign currency. The bivariate vector autoregressive approach is used to establish the relationship between the stock market and exchange rates. The results show that no relationship exists between the stock market and the proxy exchange rate. The findings contradict the expectation that exchange rate movements would influence domestic stock market prices. This finding is especially interesting given the fact that Zimbabwe uses a basket of currencies for transacting purposes, albeit with the United States dollar as a major currency for reporting and stock market pricing purposes. The findings provide new evidence of a disconnect between the stock market and exchange rate movements. This has implications for international portfolio diversification and the use of foreign currency as an asset class in an economy using a multiple currency system.

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On the Linkages between Stock Prices and Exchange Rates: Evidence from the Banking Crisis of 2007-2010

Cited by 8 publications

References 22 publications

A note on the interaction between stock prices and exchange rates in Middle-East economies

A note on the interaction between stock prices and exchange rates in Middle-East economies

The Effect of Macroeconomic Factors on Stock Prices of Swiss Real Estate Companies

Stock market returns and exchange rate movements in a multiple currency economy: the case of Zimbabwe

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