Exchange Rates and Stock Prices in the Long Run and Short Run

Bruce Morley

No 5/09, Department of Economics Working Papers from University of Bath, Department of Economics

Abstract: Using the ARDL bounds testing approach to cointegration this paper provides evidence of a stable long run relationship between the exchange rate and stock prices for the UK, Japan and Swiss currencies with respect to the US dollar. The resultant error correction models suggest a positive relationship between stock prices and the exchange rate, which in an out-of-sample forecast outperforms the random walk. We compare these results with a similar model incorporating interest rates, suggested by Solnik (1987), however this does not in general improve the results.

Keywords: stock prices; forecast; cointegration; exchange rates (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-for, nep-ifn and nep-mon
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eid:wpaper:15973

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