Dynamic linkage between real exchange rates and stock prices: Evidence from developed and emerging Asian markets

Tomoe Moore and Ping Wang

International Review of Economics & Finance, 2014, vol. 29, issue C, 1-11

Abstract: This paper investigates the sources of the dynamic relationship between real exchange rates and stock return differentials in relation to the US market for the developed and emerging Asian markets. We, first, derive the dynamic conditional correlation (DCC) of the two series, and then DCC is regressed on the trade balance and the interest rate differentials. In general, the trade balance is found to be a main determinant of the dynamic correlation for the Asian markets, whereas the interest rate differential is the driving force for the developed markets. The latter seems to reflect the high capital mobility.

Keywords: Real exchange rates; Stock return differentials; Dynamic conditional correlation; Trade balance; Interest rate differentials (search for similar items in EconPapers)
JEL-codes: C22 G15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (70)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:29:y:2014:i:c:p:1-11

DOI: 10.1016/j.iref.2013.02.004

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