The stock market and exchange rate dynamics

Gavin, Michael

doi:10.1016/0261-5606(89)90022-3

Cited by 205 publications

(143 citation statements)

References 12 publications

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“…The present value of an asset is thought to be largely influenced by its expected rate of return. Thus actual exchange rate has to be determined by expected future exchange rates (see Gavin, (1989)). Portfolio balance model states that if prices of domestic stock rise, it will persuade investors to buy more domestic assets by selling foreign assets to obtain domestic currency.…”

Section: Introductionmentioning

confidence: 99%

Dynamic Relationship between Stock Prices and Exchange Rates: Evidence from Three South Asian Countries

Rahman¹,

Uddin²

2009

IBR

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In this paper we have investigated the interactions between stock prices and exchange rates in three emerging countries of South Asia named as Bangladesh, India and Pakistan. We have considered average monthly nominal exchange rates of US dollar in terms of Bangladeshi Taka, Indian Rupee and Pakistani Rupee and monthly values of Dhaka Stock Exchange General Index, Bombay Stock Exchange Index and Karachi Stock Exchange All Share Price Index for period of January 2003 to June 2008 to conduct the study. Empirical result shows that exchange rates and stock prices data series are non stationary and integrated of order one. Then we have applied Johansen procedure to test for the possibility of a cointegrating relationship. Result shows that there is no cointegrating relationship between stock prices and exchange rates. Finally we applied Granger causality test to find out any causal relationship between stock prices and exchange rates. Outcome shows there is no way causal relationship between stock prices and exchange rates in the countries.

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Section: Introductionmentioning

confidence: 99%

Dynamic Relationship between Stock Prices and Exchange Rates: Evidence from Three South Asian Countries

Rahman¹,

Uddin²

2009

IBR

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“…Also, as prices of stocks can be viewed as the present value of future cash flows of firms, they respond to exchange rate changes. Conversely, stock-oriented models of exchange rates [18] and [19] suggest that stock market innovations affect aggregate demand by the liquidity and wealth effects, ultimately impact demand of money [20] . A decline in stock prices reduce the wealth of domestic investor that consequently lead to lower money demand hence ensure lower interest rates.…”

Section: Introductionmentioning

confidence: 99%

Are Stock Markets and Foreign Exchange Markets Cointegrated? An Empirical Analysis

Laghari¹,

Chengang²

2017

International Journal of Managerial Studies and Research

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“…we follow multifactor-modelling in the spirit of Arbitrage Pricing Theory (APT) instead of augmented CAPM, thus avoiding some omitted variable bias. We argue that macroeconomic shocks such as divergent monetary and fiscal policies, as well as asynchronous output movements might drive stock returns and exchange rates in multidimensional ways such that any prediction of the prevailing impact of exchange rates on stock returns is regime-dependent (see Gavin, 1989). Following further along these lines, we take account of time-dependency risks by running moving-window regressions.…”

Section: Introductionmentioning

confidence: 99%

“…For instance, a depreciation might be related to some expansionary monetary policy that simultaneously could have a positive impact on economic activity of domestic firms (Dornbusch, 1976). From the more general viewpoint of financial and macroeconomic theory, Gavin (1989) provided a framework that shows how exchange rates and stock returns interact, and how they react to changes in interest rates, output, and, in particular, to anticipated and unanticipated changes of monetary and fiscal policy (see also Blanchard, 1981, for a related work).…”

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confidence: 99%

German Exchange Rate Exposure at DAX and Aggregate Level, International Trade, and the Role of Exchange Rate Adjustment Costs

Entorf

Jamin

2003

SSRN Journal

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Summary: This article analyses value changes of German stock market companies in response to movements of the US dollar. The approach followed in this work extends the standard means of measuring exchange rate exposure in several ways (e.g. by using multi-factor modelling instead of augmented CAPM, application of moving window panel regressions, orthogonalization of overall market risk vis-à-vis currency risk). The main innovation lies in testing implications of exchange rate adjustment costs (hedging costs) for firm values and exposure. Based on time series data of German DAX companies, DM/ dollar rates and macroeconomic factors, we find a rather unstable, timevariant exposure of German stock market companies. Dollar sensitivity is positively affected by the ratio of exports/GDP and negatively affected by imports/GDP as well as by significant deviations of the dollar price from its long-run median. The first two findings are in line with the presumption that exporting corporations benefit from dollar price increases, whereas importing corporations benefit from dollar price decreases. The last finding can be explained by higher exchange rate adjustment costs in case of substantial deviations from the long-run median level. Furthermore, there is indication of asymmetric adjustment costs as effects from appreciations of domestic currency appear to be smaller than from depreciations.

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The stock market and exchange rate dynamics

Cited by 205 publications

References 12 publications

Dynamic Relationship between Stock Prices and Exchange Rates: Evidence from Three South Asian Countries

Dynamic Relationship between Stock Prices and Exchange Rates: Evidence from Three South Asian Countries

Are Stock Markets and Foreign Exchange Markets Cointegrated? An Empirical Analysis

German Exchange Rate Exposure at DAX and Aggregate Level, International Trade, and the Role of Exchange Rate Adjustment Costs

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