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

32 Pages Posted: 16 Apr 2013

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

John Hunter

Brunel University - School of Social Science

Faek Menla Ali

University of Sussex -University of Sussex Business School

Multiple version iconThere are 2 versions of this paper

Date Written: April 16, 2013

Abstract

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.

Keywords: stock prices, exchange rates, causality-in-variance, cointegration

JEL Classification: F310, G150, C320

Suggested Citation

Caporale, Guglielmo Maria and Hunter, John and Menla Ali, Faek, On the Linkages between Stock Prices and Exchange Rates: Evidence from the Banking Crisis of 2007-2010 (April 16, 2013). CESifo Working Paper Series No. 4189. Available at SSRN: https://ssrn.com/abstract=2251824

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

John Hunter

Brunel University - School of Social Science ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom
00-44-1895-266648 (Phone)

HOME PAGE: http://www.brunel.ac.uk/about/acad//sss/depts/economics/ef_staff/johnhunter

Faek Menla Ali

University of Sussex -University of Sussex Business School ( email )

Falmer
Brighton, East Sussex BN1 9SL
United Kingdom

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