The foreign exchange and stock market nexus: New international evidence

Zixiong Xie, Shyh-Wei Chen and An-Chi Wu

International Review of Economics & Finance, 2020, vol. 67, issue C, 240-266

Abstract: This study attempts to re-examine the exchange rate-stock price nexus for a group of advanced and emerging countries. To this end, we employ the symmetric and asymmetric bootstrap panel Granger non-causality tests, which allows us to untangle the symmetric and asymmetric causations between exchange rates and stock prices under considerations of the cross-sectional dependence and asymmetry of the data at the same time. Among the main results, it is found that, first, the stock prices are helpful for predicting the exchange rates, but not vice versa. Second, the results show weak evidence in support of unidirectional asymmetric causality running from exchange rates to stock prices, and vice versa. Third, the empirical results of the Hatemi-J (2012) symmetric panel Granger non-causality tests show that there is a causation from stock prices to exchange rates, and vice versa. The hypotheses of the Hatemi-J asymmetric panel Granger non-causality from stock prices to exchange rates or from exchange rates to stock prices are not rejected, which are in line with the Emirmahmutoglu and Kose (2011) test. Fourth, when we adopt the raw data to conduct the Emirmahmutoglu and Kose (2011) test, the causal relations are in line with the results using the log of data. Moreover, by using the raw data, the causal relations predicted by using the Hatemi-J (2012) panel Granger non-causality test echo the causal relations predicted by using the Emirmahmutoglu and Kose (2011) test.

Keywords: Exchange rate; Stock price; Panel model; Granger non-causality (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:67:y:2020:i:c:p:240-266

DOI: 10.1016/j.iref.2020.01.001

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