An Empirical Test on Linkage Between Foreign Exchange Market and Stock Market: Evidence from Hungary, Czech Republic, Poland and Romania (original) (raw)

On the dynamic link between stock prices and exchange rates: evidence from Romania

2007

The theoretical linkages between exchange rates and stock prices are microeconomic as well as macroeconomic in nature and may be observed on the short-and long-run. The paper examines the interactions between the exchange rates and stock prices in Romania, after 1997, taking into account the change in the monetary regime occurred in 2005 -the shift towards inflation targeting. The analysis uses bivariate cointegration and Granger causality tests, applied on daily and monthly exchange rates and stock prices data collected over the 1999 to 2007 period. Three types of exchange rates are used: the nominal effective exchange rates of the Romanian leu, the bilateral nominal exchange rates of the leu against the US dollar and the euro, and the real effective exchange rates of the leu. In terms of stock prices, the BET and BET-C indices of the Bucharest Stock Exchange are used, denominated in the local currency.

The association between stock market and exchange rates for advanced and emerging markets – A case study of the Swiss and Polish economies

This paper investigates the differences in structures of causal relationships between stock and currency markets for advanced and emerging economies on the example of Switzerland and Poland. The bootstrap-based linear causality analysis as well as nonlinear causality tests were conducted for both considered countries. Results of linear causality analysis indicated that for Swiss economy the portfolio approach seems to be the right pattern while for Poland the traditional and portfolio approaches were found to be appropriate. On the other hand the results of nonlinear analysis provided solid basis to claim that for Switzerland both approaches are acceptable while for Poland nonlinear causality was not reported in any direction. Results of nonlinear causality test were generally unchanged after GARCH(1,1) filtration. The existence of strong causal links from stock to currency markets of both economies seems to have a practical application for investors helping to hedge their portfolios against currency shocks.

On the causality between stock prices and exchange rates: evidence from Turkish financial market

Problems and perspectives in management, 2017

The aim of this paper is to investigate the existence and direction of relationship between stock prices and exchange rates for Turkish financial market. Granger (1969) causality testing methodology was employed to reveal the nature of relationship between the two variables. This work contributes to the existing body of literature in the way that in Turkish financial market, there is a uni-directional causality running from stock prices to exchange rates using the daily observations for the sample period, which runs from February 23, 2001 to November 4, 2009. Also, the model used in this study extends the scope of exchange rate variables including a total of five currencies US dollar, Euro, Japanese Yen, Pound Sterling, Swiss Franc and two baskets of currencies of Undersecretariat of Foreign Trade of Turkey. This evidence has implications for the policy makers and economic actors to perceive the movements in stock prices as a dynamic determinant, which may affect the success of their exchange rate policies.

The Causality Between Stock Returns and Exchange Rates: Revisited

Australian Economic Papers, 2005

There has been a renewed interest in the determinatio n of causality between stock markets and exchange rates. In nearly all these studies Granger causality tests has been extensively used In this paper, we employ the standard Granger causality methodology to a research setting similar to that of Granger et.al. (2000). We consider the causality between the two markets in nine East Asian economies. We find that the direction of causality tends to demonstrate a hit-and-run behaviour and switches according to the length of period chosen. This implies that great caution should be taken when interpreting Granger causality results.

Relationship between Foreign Exchange Rate and Stock Price of Commercial Banks in Romanian financial market

2018

In the context of globalization and the financial crisis that the world traversed over the period 2007-2009, the Romanian capital market suffered extreme shocks (stock indices recording a decline of up to 90% while the national currency depreciated sharply against EUR and USD), which led to a significant increase in volatility in the national financial market. Considering that the financial sector was the trigger of the crisis and one of the most affected sector, we chose to analyze whether we can talk about the foreign exchange rate impact on price of the bank shares traded on the Bucharest Stock Exchange and vice versa (during March 2008 -June 2017), using correlation and VAR Granger Causality test. Frequency of data is daily. We also studied the evolution of the correlation between the banking sector (represented bythe shares of the banking companies traded on the Bucharest Stock Exchange) and the foreign exchange market during and after the financial crisis.Next, we analyzed vol...

The Dynamic Relationship Between Stock Prices and Exchange Rates: Evidence from Four Transition Economies

2007

This article examines the dynamic relationship between exchange rates and stock prices in four Easter European markets, Czech Republic, Hungary, Poland and Slovakia, using stock price and exchange rate data from these countries, as well as stock prices from the United States, Germany and the United Kingdom. The data set consists of daily data over a 7 year period from 1999 to 2006. Both the long-run and the short-run association between these variables are analyzed.