On the relation between stock prices and exchange rates: a review article

Mohsen Bahmani‐Óskooee · Sujata Saha

131 citations0/0 files storedJournal of Economic Studies

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Market Dynamics and Volatility Monetary Policy and Economic Impact Financial Markets and Investment Strategies

Abstract

Purpose – While changes in stock prices are said to affect exchange rates, exchange rate changes are also said to affect stock prices. The purpose of this paper is threefold. First, the authors review all empirical literature by dividing them into two groups of univariate and multivariate studies. Second, a table which summarizes the main features of each study is provided to help future researchers to have easy access to summary of each study. Finally, a new direction for future research is proposed. This new direction relies upon non-linear ARDL approach and shows how to investigate symmetric vs asymmetric effects of exchange rate changes on stock prices. Design/methodology/approach – The paper reviews existing published work and provides suggestions for future research. Findings – The paper reviews existing published work and provides suggestions for future research. An application reveals that exchange rate changes have asymmetric effect on stock prices. Originality/value – This is the first review paper on the relation between exchange rates and stock prices.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1993Common risk factors in the returns on stocks and bonds 2001Bounds testing approaches to the analysis of level relationships 1986Economic Forces and the Stock Market 2014Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework 2000A bivariate causality between stock prices and exchange rates: evidence from recent Asianflu☆2011Oil prices, exchange rates and emerging stock markets 1992Stock prices and the effective exchange rate of the dollar

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