"http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"> TESTING THE RELATIONSHIP BETWEEN EXCHANGE RATE AND STOCK PRICE IN THE ASEAN COUNTRIES | Harjito | Economic Journal of Emerging Markets

TESTING THE RELATIONSHIP BETWEEN EXCHANGE RATE AND STOCK PRICE IN THE ASEAN COUNTRIES

Dwipraptono Agus Harjito

Abstract


The aim of this paper is to investigate the statistical relationship between stock prices and exchange rates in ASEAN from 1993–2006. Using Engle-Granger test, it finds that the re-lationship between stock prices and exchange rates is characterized by a feedback system, with Singapore Dollar as the dominant exchange rate. Johansen co-integration test finds that all of the stock prices and exchange rates are co-integrated. The results are supported by Vector Autoregression and Vector Error Correction Models. With respect to the relationship between stock prices and exchange rates, the results are inconclusive. The causality mostly runs from exchange rates to stock prices.

Keywords


Stock, exchange rates, ASEAN

Full Text:

PDF

References


Abdalla, I.S.A. and V. Murinde (1997), “Exchange Rates and Stock Prices Interaction in Emerging Financial Markets: Evidence on India, Korea, Pakistan, and the Philip-pines,” Applied Financial Economics, 7, 25-35.

Aggarwal, R. (1981), “Exchange Rates and Stock Prices: A study of the US Capital Markets under Floating Rates,” Akron Business and Economic Review, 12, 7-12.

Ajayi, R.A., J. Friedman, and S.M. Mehdian (1998), ”On the Relationship between Stock Returns and Exchange Rates: Tests of Granger Causality,” Global Finance Journal, 9, 241-251.

Bahmani-Oskooee, M. and A. Sohrabian (1992), “Stock Prices and the Effective Exchange Rates of the Dollar,” Applied Economics, 24, 459-464.

Bodnar, G.M., and W.M. Gentry (1993), “The Exchange Rates Exposure and Industry Characteristics: Evidence from Canada, Japan and the US,” Journal of International Money and Finance, 12, 29-45.

Dickey, D.A. and W.A. Fuller (1979), “Distribution of the Estimators for Autoregression Time Series with a Unit Root,” Journal of American Statistic Association, 74, 427- 431.

Doong, S.C., S.Y. Yang, and A.T. Wang (2005), “The Dynamic Relationship and Pricing of Stocks and Exchange Rates: Empirical Evidence from Asian Emerging Markets,” Journal of American Academy of Business, 7(1), 123-135.

Engle, R.F. and C.W. Granger (1987), “Co-integration and Error Correction: Representa-tion, Estimation and Testing,” Econometrica, 55, 251–276.

Granger, C.W. (2000), “A Bivariate Causality between Stock Price and Exchange Rates: Evidence from Recent Asian Flu,” Quarterly Review of Economics and Finance, 21(2), 43-58.

Harjito, D.A. (2006), “Hubungan Nilai Tukar dan Harga Saham di Pasar Modal Malaysia: Pendekatan Statistik Non-parametrik,” Jurnal Ekonomi dan Bisnis-EKOBI, 7(2), 257-279.

Harjito, D.A. and C.B. McGowan (2007), “Stock Price and Exchange Rate Causality: The Case of Four ASEAN Countries,” Southwestern Economic Review, 34(1), 103-114.

Ibrahim, M.H. (2000), “Cointegration and Granger Causality Test of Stock Prices and Ex-change Rates Interactions in Malaysia,” ASEAN Economic Bulletin, 17, 36-47.

Johansen, S. (1988), ”Statistical Analysis of Cointegration Vectors,” Journal of Economics Dynamic Control, 12, 231–254.

Jorion, P. (1990), “The Exchange Rates Exposure of US. Multinationals,” Journal of Bus-inness, 63, 331-345.

Krueger, A.O. (1983), Exchange Rates Determination, Cambridge University Press, Cam-bridge.

Phylaktis, K. and F. Ravazzolo (2002), Stock Price and Exchange Rate Dynamics, London, City University Business School.

Solnik, B.H. (1984), “Stock and Money Variabels: The International Evidence,” Financial Analyst Journal, 69-73.


Article Metrics

Metrics Loading ...

Metrics powered by PLOS ALM


Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Economic Journal of Emerging Markets (EJEM)
ISSN 2086-3128 (print), ISSN 2502-180X (online)
Published by:
Center for Economic Studies, Department of Economics,
Universitas Islam Indonesia, Indonesia.

Creative Commons License
EJEM by http://journal.uii.ac.id/index.php/JEP/ is licensed under a Creative Commons Attribution 4.0 International License.