This research investigates the dynamic relations between exchange rates and stock indexes for Brazil by adopting the Granger causality test and the quantile regression model. The causality test results show that changes in stock indexes cause changes in exchange rates in the full sample period and all five subperiods. The results of different quantile regressions reveal an inverse U-shape pattern of the negative coefficients, which indicates that the negative correlation between changes in exchange rates and changes in stock indexes is even clearer when exchange rates become extremely low or high. The empirical results are consistent with the portfolio approach, which suggests that changes in stock indexes result in changes in exchange rates (the stock market leads the foreign exchange market) with the negative sign of correlation

Jeng-Hong Chen

The International Journal of Business and Finance Research, 2020, vol. 14, issue 1, 57-69

Abstract: F31, G15

Keywords: Exchange Rates; Stock Indexes; Granger Causality; Quantile Regression (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:14:y:2020:i:1:p:57-69

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