On the Linkages between Stock Prices and Exchange Rates: Evidence from the Banking Crisis of 2007-2010

By Guiglielmo Maria Caporale, John Hunter, Faek Menla Ali. Social Science Research Network, 2014

161 citations recorded by the source corpus.

This study examines the nature of the linkages between stock market prices and exchange rates in six advanced economies, namely the US, the UK, Canada, Japan, the euro area, and Switzerland, using data on the banking crisis between 2007 and 2010. Bivariate GARCH-BEKK models are estimated producing evidence of unidirectional spillovers from stock returns to exchange rate changes in the US and the UK, in the opposite direction in Canada, and of bidirectional spillovers in the euro area and Switzerland. Furthermore, causality-in-variance from stock returns to exchange rates changes is found in Japan and in the opposite direction in the euro area and Switzerland, whilst there is evidence of bidirectional feedback in the US and Canada. These findings imply limited opportunities for investors to diversify their assets during this period.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/512e96741ff9581c95bf1846984ebc3796287edf

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Citations in the corpus

Do exchange rate changes have symmetric or asymmetric effects on stock prices (2016, unknown): “Caporale et al. (2014) used data for the period 2003-2011 and found that in the short run, there is unidirectional Granger causality from stock returns to exchange rate in the U.S. and the U.K.; in the opposite direction in Canada and bidirectional causality in the Euro area and Switzerland.”
The economic value of Bitcoin: A portfolio analysis of currencies, gold, oil and stocks (2019, unknown): “The hedging properties and correlation across the asset classes are extensively studied in the literature (Ciner et al., 2013; Caporale et al., 2014).”
On the relation between stock prices and exchange rates: a review article (2015, methodology): “Using an APMmodel, Chen et al. (1986) examined the effect of different macroeconomic variables (industrial production, inflation, risk premia, etc.”