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On the relation between exchange rates and stock prices: a non-linear ARDL approach and asymmetry analysis

Mohsen Bahmani-Oskooee () and Sujata Saha ()
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Sujata Saha: The University of Wisconsin-Milwaukee

Journal of Economics and Finance, 2018, vol. 42, issue 1, 112-137

Abstract: Abstract The relationship between stock prices and exchange rates has received a great deal of attention. In investigating the link between the two variables most studies have concluded that the relation is short run and the two variables have no long run relationship. Furthermore, all existing studies have assumed that the effects of exchange rate changes on stock prices are symmetric. In this paper we use monthly time-series data from 24 countries and non-linear ARDL method to show that the effects of exchange rate changes on stock prices could be asymmetric. The same is true when we consider the effects of changes in stock prices on the exchange rate. Introducing nonlinearity yields relatively more support for asymmetric cointegration compared to symmetric cointegration.

Keywords: Exchange Rates; Stock Prices; Nonlinear ARDL; Asymmetry (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:jecfin:v:42:y:2018:i:1:d:10.1007_s12197-017-9388-8