The Cointegration between Exchange Rates and Stock Prices in Highly Volatile Markets: Evidence from Pakistan
Middle Eastern Finance and Economics, Vol. 15, pp. 156-163, 2011
8 Pages Posted: 9 Nov 2011
Date Written: November 9, 2011
Abstract
This paper empirically tests the existence and direction of causality between stock market index (KSE) and exchange rates in the post-floating exchange rate regime and vibrant stock market performance of Pakistan. The data period ranges from January 1998 to December 2009. Results of Engle-Granger causality test and VAR test show that a bi-directional causality exists between the variables. Our results are different from earlier studies on this topic in Pakistan as those studies used data of pre-floating exchange rate regimes.
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