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Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America

Author

Listed:
  • Andre Yone Haughton

    (Department of Economics, University of the West Indies Mona, Kingston 7, Jamaica,)

  • Emma M. Iglesias

    (Department of Applied Economics, II. Facultad de Econom a y Empresa, University of A Coru a, Campus de Elvi a, A Coru a, 15071, Spain.)

Abstract
We analyze the interrelationship between stock prices and exchange rates in the only two Caribbean countries with stock market and floating exchange rates: Jamaica and Trinidad and Tobago. We also study the same four Latin American countries as in Diamandis and Drakos (2011). Using their model, our results show a very mild relationship between both variables in Jamaica, Trinidad and Tobago, Argentina and Brazil, but we cannot find any relationship in the other countries as in Diamandis and Drakos (2011). However, when we extend their model including a generalized autocorrelation conditional heteroskedasticity (component to examine the impact of volatility, our results changed drastically: Stock prices significantly impacted the exchange rate in the tranquil sub-period and the full period for Jamaica, over all three periods for Trinidad and Tobago and in the tranquil period for Argentina, Mexico and Chile. This shows the importance of incorporating volatility explicitly in the model. Our results have the policy implications that governments in the previous countries should try to prevent a currency crisis by stimulating economic growth and the expansion of the stock market to attract capital inflow as in Lin (2012).

Suggested Citation

  • Andre Yone Haughton & Emma M. Iglesias, 2017. "Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 437-447.
    • Handle: RePEc:eco:journ1:2017-02-57
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    References listed on IDEAS

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    Cited by:

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    2. Zakiya Begum Sayed & J. Gayathri, 2023. "Factors Determining the Exchange Rate Exposure of Firms: Evidence from India," Business Perspectives and Research, , vol. 11(2), pages 210-226, May.

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    More about this item

    Keywords

    Exchange Rates; Stock Prices; Volatility;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G01 - Financial Economics - - General - - - Financial Crises

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