The Causal Relationship between Stock Prices and Exchange Rates: Evidence from the G-7

Shyh-Wei Chen () and Tzu-Chun Chen
Additional contact information
Shyh-Wei Chen: Department of International Trade, Chung Yuan Christian University, Taiwan
Tzu-Chun Chen: Taiwan Research Institute, Taiwan

Journal of Economics and Management, 2011, vol. 7, issue 1, 101-133

Abstract: We examine the nexus of stock prices and exchange rates for the G-7 countries by using the vector error correction model, the bounds testing methodology and linear and non-linear Granger causality methods. The empirical results substantiate that a long-run level equilibrium relationship exists among the exchange rates and stock prices for the UK and France. The results from the linear causality tests indicate significant short-run and long-run causal relations between the two financial markets. In the results of the non-linear Granger causality, there are unidirectional and bidirectional non-linear causal relations between stock prices and exchange rates in six of the G-7 countries. Therefore, the causal relations between stock prices and exchange rates are not only linear but are also non-linear.

Keywords: exchange rate; stock price; cointegration; causality (search for similar items in EconPapers)
JEL-codes: C32 F31 G1 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.jem.org.tw/content/pdf/Vol.7No.1/05.pdf (application/pdf)
http://www.jem.org.tw/content/abstract/Vol.7No.1/English/05.htm (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jec:journl:v:7:y:2011:i:1:p:101-133

Access Statistics for this article

Journal of Economics and Management is currently edited by Cathy W. S. Chen and Shih-Wen Hu

More articles in Journal of Economics and Management from College of Business, Feng Chia University, Taiwan Contact information at EDIRC.
Bibliographic data for series maintained by Yi-Ju Su ().