The Dynamic Relationship between Stock Prices and Exchange Rates: evidence for Brazil

Benjamin Tabak

No 124, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper studies the dynamic relationship between stock prices and exchange rates in the Brazilian economy. We use recently developed unit root and cointegration tests, which allow endogenous breaks, to test for a long run relationship between these variables. We performed linear, and nonlinear causality tests after considering both volatility and linear dependence. We found that there is no long-run relationship, but there is linear Granger causality from stock prices to exchange rates, in line with the portfolio approach: stock prices lead exchange rates with a negative correlation. Furthermore, we found evidence of nonlinear Granger causality from exchange rates to stock prices, in line with the traditional approach: exchange rates lead stock prices. We believe these findings have practical applications for international investors

Date: 2006-11
New Economics Papers: this item is included in nep-ifn and nep-rmg
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Citations: View citations in EconPapers (33)

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Related works:
Journal Article: THE DYNAMIC RELATIONSHIP BETWEEN STOCK PRICES AND EXCHANGE RATES: EVIDENCE FOR BRAZIL (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:124

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