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Bivariate causality between exchange rates and stock prices in South Asia

Russell Smyth () and M. Nandha

Applied Economics Letters, 2003, vol. 10, issue 11, 699-704

Abstract: This article examines the relationship between exchange rates and stock prices in Bangladesh, India, Pakistan and Sri Lanka using daily data over a six-year period from 1995 to 2001. Both the Engle-Granger two-step and Johansen cointegration methods suggest that there is no long-run equilibrium relationship between these two financial variables in any of the four countries. Granger causality tests find that there is uni-directional causality running from exchange rates to stock prices in India and Sri Lanka, but in Bangladesh and Pakistan exchange rates and stock prices are independent.

Date: 2003
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Handle: RePEc:taf:apeclt:v:10:y:2003:i:11:p:699-704