The relation between national stock prices and effective exchange rates: Does it affect exchange rate exposure?

Marko Korhonen

No 201346, Proceedings of International Academic Conferences from International Institute of Social and Economic Sciences

Abstract: There is twofold contribution in this paper. First, by using monthly data for 8 industrialized countries for the period 1973-2011 we find evidence of time-varying cointegration relationship between effective exchange rates and national stock market indices. Second, we show that stock markets react differently on exchange rate changes depending on the connection between exchange rate and stock market. More specifically, we provide statistically significant evidence that the effect of the exchange rate exposure varies with the cointegration relation between stock and foreign exchange rate markets. This leads us to conclude that the exchange rate exposure is a time-varying non-linear process that follows exchange rate and stock market movements.

Keywords: Exchange rate exposure; stock market returns; ARDL; cointegration; threshold (search for similar items in EconPapers)
JEL-codes: F31 F37 G15 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2014-06
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Published in Proceedings of the Proceedings of the 10th International Academic Conference, Vienna, Jun 2014, pages 409-423

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https://iises.net/proceedings/10th-international-a ... id=2&iid=59&rid=1346 First version, 2014

Related works:
Journal Article: The Relation between National Stock Prices and Effective Exchange Rates: Does It Affect Exchange Rate Exposure? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:sek:iacpro:0201346

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