The Dynamic Relationship Between  The Real Exchange and Stock Markets:  Evidence During The Economic Crisis to  Crisis

P.VIJAYARAJ

Volume : III, Issue : IV, April - 2014

The Dynamic Relationship Between The Real Exchange and Stock Markets: Evidence During The Economic Crisis to Crisis

P. Vijayaraj

Abstract :

This paper examines the dynamic linkages between the foreign exchange and stock markets for seven Asian countries, including India, china, Taiwan, Indonesia, Korea, Philippines and Thailand. While the literature suggests the existence of significant Interactions between the two markets, our empirical results show that, in general, exchange rates Granger-cause stock prices with less significant causal relations from stock prices to exchange rates. Furthermore, this one-way Granger causality effect from exchange rates to stock prices becomes less significant during the US financial crisis of 2009. Our results also suggest that, there is insignificant long-run outlook (no co integration) except for Thailand, implies that these financial assets share on common trends in their economy system and hence they will move apart in the long-run for countries that have higher trade size exchange rate fluctuations tend to exhibit significant influence on the equity market, regardless of the exchange rate arrangement system and the degree of capital controls during the US financial crisis of 2009.