Foreign exchange market pressure and stock market dynamics in emerging Asia

Muhammad Aftab (), Abid Ali () and Scott Hegerty
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Muhammad Aftab: COMSATS University Islamabad
Abid Ali: COMSATS University Islamabad

International Economics and Economic Policy, 2021, vol. 18, issue 4, No 3, 699-719

Abstract: Abstract This study investigates connections between currency and stock markets for the Asian emerging economies using a novel approach that considers exchange rate management. We build an index of exchange market pressure and examine its association with stock market returns using a DCC-GARCH model, as well as Granger causality tests. We find a negative time-varying association between exchange market pressure and stock market returns. Moreover, there is bidirectional causality between these variables in many cases. China and India have much less of a relationship than do smaller neighbors such as Korea, the Philippines, Singapore, and Thailand. This research draws important implications.

Keywords: Exchange market pressure; Stock prices; Emerging economies; Asia (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10368-021-00501-w

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