 Asymmetric Interaction between Stock Price Index and Exchange Rates: Empirical Evidence for RomaniaJournal for Economic Forecasting, 2015, issue 4, 90-109 Abstract: This paper examines the interaction between the stock market and the foreign exchange market of Romania. This relationship has important implications from the viewpoint of the two economic theories - the traditional theory and the portfolio balance theory - and especially in the light of the increasing openness of the economy to international trade and investment. The data set, from March 2000 to March 2014, covers different market phases and stock market crashes, such as the recent global financial crisis and the Euro Area debt crisis. Due to the nonlinear nature of the relation between the variables, the study employs a threshold error-correction model based on two distinct regimes extended to incorporate asymmetries related to short-term good or bad news from the two markets. Within this framework, the empirical evidence shows that there is a long-run equilibrium between the two variables during the time period investigated. There are also short-run non-linear relationships sensitive to short-term good or bad news in the regime with fewer observations, called ‘extreme regime’. Keywords: exchange rates; stock prices; causality; non-linearity; asymmetric threshold model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2015:i:4:p:90-109 Access Statistics for this article Journal for Economic Forecasting is currently edited by Lucian Liviu Albu and Corina Saman More articles in Journal for Economic Forecasting from Institute for Economic Forecasting Contact information at EDIRC. |
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