How Often Does the Exchange Rate Granger Cause the Stock Market in Pakistan? A Bootstrap Rolling Window Approach

Khalid Khan (), Chi-Wei Su (), Adnan Khurshid () and Ashfaq U. Rehman
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Khalid Khan: School of Finance, Qilu University of Technology, China
Chi-Wei Su: Department of Finance, Ocean University of China, China
Adnan Khurshid: Abbottabad University of Science and Technology, Abbottabad, Pakistan
Ashfaq U. Rehman: Department of Political Science Women University of Sawabi, Pakistan

Asian Journal of Applied Economics/ Applied Economics Journal, 2018, vol. 25, issue 1, 65-78

Abstract: his paper investigates the causal link between the stock market (SM) and the exchange rate (EXR) in Pakistan, using the bootstrap Granger causality and sub-sample rolling window estimation. The full sample Granger causality test indicates no causality between the SM and the EXR. The stability of the parameters is examined by taking into the account structural changes for individual series as well as the VAR. The full sample Granger test shows the absence of causality. The rolling window approach shows the uni-directional positive and negative relationship between the SM and the EXR. The study gives some suggestions to the government and policy makers that a well-coordinated policy implementation and execution regarding the SM and the EXR are crucial in attracting foreign investors and developing a sound financial system in the country complementary to the development of the economy.

Keywords: Rolling Window; Bootstrap; Granger causality; Stock market; Exchange rate (search for similar items in EconPapers)
JEL-codes: C22 C32 F32 (search for similar items in EconPapers)
Date: 2018
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