The Relationship between Stock Price Index and Exchange Rate in Asian Markets: A Wavelet Based Correlation and Quantile Regression Approach

15 Pages Posted: 24 Apr 2013

See all articles by Arif Billah Dar

Arif Billah Dar

Pondicherry University - School of Management

Aasif M.

Pondicherry University

Niyati Bhanja

Pondicherry University - Department of Economics

Amaresh Samantaraya

Pondicherry University

Date Written: April 23, 2013

Abstract

We use data set of five Asian countries to estimate the frequency and quantile based relationship between stock price index and exchange rate. We apply simple correlation and wavelet based correlation and in accordance with the portfolio balance effect, we find that the two variables are negatively related at all frequencies. Moreover it is found that correlation grows stronger with higher time scales. We further apply quantile regression to observe the various relationships between stock and foreign exchange markets at different quantiles of exchange rates. The results show an interesting pattern in the relation of these two markets in Asia, which indicates that the negative relation is asymmetric across different quantiles of exchange rates and more obvious when exchange rates are extremely low or both high and low.

Keywords: Quantile Regression, Wavelets, Asia

JEL Classification: G10, G15, C22

Suggested Citation

Dar, Arif Billah and M., Aasif and Bhanja, Niyati and Samantaraya, Amaresh, The Relationship between Stock Price Index and Exchange Rate in Asian Markets: A Wavelet Based Correlation and Quantile Regression Approach (April 23, 2013). Available at SSRN: https://ssrn.com/abstract=2255378 or http://dx.doi.org/10.2139/ssrn.2255378

Arif Billah Dar (Contact Author)

Pondicherry University - School of Management ( email )

Pondicherry, 605 014
India

Aasif M.

Pondicherry University ( email )

Department of Commerce
Kanchi Mamunivar Centre for Post Graduate Studies
Pondicherry University, Tamil Nadu 605014
India
+91-8122263418 (Phone)

Niyati Bhanja

Pondicherry University - Department of Economics ( email )

Pondicherry 605 014
India

Amaresh Samantaraya

Pondicherry University ( email )

Pondicherry 605 014
India

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