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Exchange rates or stock prices, what causes what: A firm level empirical investigation

Author

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  • Rashid, Abdul
Abstract
The study employs cointegration, the standard Granger causality tests and vector error correction modeling technique to investigate the cause-effect association between exchange rates and stock prices for Pakistan. It uses weekly data for 70 individual securities and the trade-weighted exchange rate over the span from January 1, 1999 to March 31, 2004. The results of cointegration tests show that there is no co-movement between the said variables for most of the examined firms. On the issue of causation, the evidences are mixed. In some cases causation runs from stock prices to exchange rate whereas for some firms’ stock prices are affected by the changes in trade-weighted exchange rate. However, the analysis findings are generally supporting the asset market approach to exchange rate determination that reports no link between the said variables.

Suggested Citation

  • Rashid, Abdul, 2007. "Exchange rates or stock prices, what causes what: A firm level empirical investigation," MPRA Paper 27209, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27209
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    References listed on IDEAS

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    Cited by:

    1. Grace Ofori-Abebrese & Samuel Tawiah Baidoo & Peter Yaw Osei, 2019. "The Effect of Exchange Rate and Interest Rate Volatilities on Stock Prices: Further Empirical Evidence from Ghana," Economics Literature, WERI-World Economic Research Institute, vol. 1(2), pages 117-132, December.

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    More about this item

    Keywords

    Stock Price; Exchange Rate; Firm-Level; Cointegration;
    All these keywords.

    JEL classification:

    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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