On the Linkages between Stock Prices and Exchange Rates: Evidence from the Banking Crisis of 2007-2010

Guglielmo Maria Caporale, John Hunter () and Faek Menla Ali

No 1289, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This study examines the nature of the linkages between stock market prices and exchange rates in six advanced economies, namely the US, the UK, Canada, Japan, the euro area, and Switzerland, using data on the banking crisis between 2007 and 2010. Bivariate GARCH-BEKK models are estimated producing evidence of unidirectional spillovers from stock returns to exchange rate changes in the US and the UK, in the opposite direction in Canada, and of bidirectional spillovers in the euro area and Switzerland. Furthermore, causality-in-variance from stock returns to exchange rates changes is found in Japan and in the opposite direction in the euro area and Switzerland, whilst there is evidence of bidirectional feedback in the US and Canada. These findings imply limited opportunities for investors to diversify their assets during this period.

Keywords: Stock prices; exchange rates; causality-in-variance; cointegration (search for similar items in EconPapers)
JEL-codes: C32 F31 G15 (search for similar items in EconPapers)
Pages: 31 p.
Date: 2013
New Economics Papers: this item is included in nep-eec and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: On the linkages between stock prices and exchange rates: Evidence from the banking crisis of 2007–2010 (2014)
Working Paper: On the Linkages between Stock Prices and Exchange Rates: Evidence from the Banking Crisis of 2007-2010 (2013)
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