Exchange Rate Movements and International Interdependence of Stock Markets

International Monetary Fund

No 1989/044, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates linkages between stock markets in seven industrialized countries since 1974. Empirical evidence shows that both nominal and real stock prices (and returns) are strongly positively correlated across countries, and that nominal exchange rate changes do not have systematic effects on nominal stock prices. A two-country theoretical model is developed and an attempt is made to reconcile the empirical findings with the properties of this model. Independent evidence on the main sources of shocks is used to argue that the time-varying correlation in the data can be reconciled with the predictions of the theory.

Keywords: WP; stock price; nominal exchange rate; price movement; price dynamics; changes in the United States; equity price; bond-stock arbitrage; stock price movement; nominal stock price change; real exchange rates; goods price; stock price change; nominal stock price; Asset prices; Real exchange rates; Exchange rates; Exchange rate adjustments; Stock markets; Global (search for similar items in EconPapers)
Pages: 52
Date: 1989-01-01
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=30541 (application/pdf)

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:imf:imfwpa:1989/044

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().