The effect of output and the real exchange rate on equity price dynamics
Sedjro Aaron Alovokpinhou and
Christopher Malikane
The North American Journal of Economics and Finance, 2024, vol. 72, issue C
Abstract:
This study uses a standard equity price equation derived from arbitrage between short-term bonds and shares to explain the conditions under which the relationship between equity prices and the measures of economic activity could yield a Bad News Case or a Good News Case while controlling for the effect of the real exchange rate. We estimate the baseline model and its variants for 18 countries. The results reveal that the good news case dominates the data in advanced and emerging market economies. We find no evidence in support of the bad news case. Furthermore, the real equity price declines with a real appreciation in some countries while it rises with a real appreciation in others.
Keywords: Equity prices; Output gap; Exchange rates; Good news case; Bad news case (search for similar items in EconPapers)
JEL-codes: E44 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:72:y:2024:i:c:s1062940824000718
DOI: 10.1016/j.najef.2024.102146
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