Summary
In this paper, Granger Causality test and Johansen Cointegration Technique have been employed to investigate the causality between stock and currency markets of five Asian economies namely Pakistan, India, Indonesia, Korea and Sri Lanka. Nature of short run causality between stock and currency markets has been found different in different countries. In Pakistan, India and Indonesia, it runs from exchange rate to stock market, while feed back relationship has been found in case of Korea and Sri Lanka. However, Johansen's cointegration negates the existence of any long run causality between stock and currency markets in all the sample economies. Our findings support traditional approach in the short run and asset market approach in the long run. Results have implications for policy makers and regulators of financial markets
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Exchange Rates and Stock Market Interactions: A Study On Emerging Asian Economies
(ProQuest: ... denotes formulae omitted.)
1 IntroductionThough different financial crises are associated with different factors, yet all major crises, Latin America, 1994 East Asian, 1997 Argentina, 1994 Turkey, 2001 and global financial crisis, 2000-01 have one common characteristic; that is simultaneous effect on prices of stocks and currencies. This simultaneous effect has raised a question that which one of them is the leading indicator and causes the other to move. Theoretically, no consensus has yet been achieved on the nature and direction of association between stock market indices and exchange rate movements. Findings on the issue of causation are mixed. Some researchers like Abdalla et al (1997) found causation running from exchange rate changes to stock market returns while others found exactly the opposite one running from stock market returns to exchange rates. In the literature on relationship among different financial markets, there are three approaches. These are portfolio approach, traditional approach and assets market approach.According to portfolio approach, the changes in stock market lead to changes in exchange rate due...See the full content of this document
(Copyright 2011)
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