Stock Prices and Exchange Rates: Are they Related? Evidence from South Asian Countries
By Naeem Muhammad, Abdul Rasheed. 2002
209 citations recorded by the source corpus.
The issue of whether stock prices and exchange rates are related or not has received considerable attention after the East Asian crisis. During the crisis the countries affected saw turmoil in both currency and stock markets. If stock prices and exchange rates are related and the causation runs from exchange rates to stock prices, then the crisis in the stock markets can be prevented by controlling the exchange rates. Moreover, developing countries can exploit such a link to attract/stimulate foreign portfolio investment in their own countries. Similarly, if the causation runs from stock prices to exchange rates then authorities can focus on domestic economic policies to stabilise the stock market. If the two markets/prices are related then investors can use this information to predict the behaviour of one market using the information on other market.1 Most of the empirical literature that has examined the stock prices-exchange rate relationship has focused on examining this relationship for the developed countries with very little attention on the developing countries. The results of these studies are, however, inconclusive. Some studies have found a significant positive relationship between stock prices and exchange rates [for instance Smith (1992); Solnik (1987) and Aggarwal (1981)] while others have reported a significant negative relationship between the two [e.g., Soenen and Hennigar (1998)]. On the other hand, there are some studies that have found very weak or no association between stock prices and exchange rates [for instance, Franck and Young (1972); Bartov and Bodnor (1994)]. On the issue of causation, the evidence is also mixed. Some studies [for instance, Abdalla and Murinde (1997)] have found causation runs from exchange rates to stock prices while other reported a reverse causation [e.g., Ajayi and
Subfields: Accounting, Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/dbbc225bd3377fb119949be9fdfc88958d009402
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Accounting
In Economics and Econometrics
Citations in the corpus
- Stock Prices and Exchange Rates in the EU and the USA: Evidence of their Mutual Interactions (2004, background): “Muhammad and Rasheed (2003) used monthly data on four South Asian countries for the period 1994–2000.”
- Dynamic Relationship between Stock Prices and Exchange Rates: Evidence from Three South Asian Countries (2009, background): “In another study, Muhammad and Rasheed (2003) examined the relationship between stock prices and exchange rates of four South Asian countries named as Bangladesh, India, Pakistan and Sri-lanka and found that there is no significant relationship between the variables either in short-run or long-run…”