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Comment on Johnson and Soenen (2004): The US Stock Market and the International Value of the US Dollar

12 Pages Posted: 29 Aug 2013 Last revised: 2 Oct 2014

Mehmet F. Dicle

Loyola University New Orleans - Joseph A. Butt, S.J. College of Business

John Levendis

Loyola University New Orleans

Date Written: April 8, 2013

Abstract

Is there a relationship between the performance of US equity markets and the value of the US dollar? The question is of practical and regulatory significance. Previous attempts to answer the question relied upon on the lagged causality approach of Clive Granger and his coauthors. Given that financial markets are efficient, most of the correlation would be undetectable by such methods. In groundbreaking work, Johnson and Soenen (2004) used an estimator by Geweke (1982) that allows for contemporaneous or instantaneous effects, and found that there was always and everywhere an instantaneous link between the US equity and currency markets. Given the importance of Johnson and Soenen’s results, we attempted to replicate their study. We argue that Johnson and Soenen’s results hinge on a simple substitution error. After recalculation, we find little evidence of consistent instantaneous correlation between returns in the US equity markets and the value of the US dollar.

Keywords: Stock market, US Dollar, Equity, instantaneous causality

Suggested Citation

Dicle, Mehmet F. and Levendis, John, Comment on Johnson and Soenen (2004): The US Stock Market and the International Value of the US Dollar (April 8, 2013). Journal of Economics and Business, Volume 69, September–October 2013, Page 101-108. Available at SSRN: https://ssrn.com/abstract=2317665

Mehmet Dicle (Contact Author)

Loyola University New Orleans - Joseph A. Butt, S.J. College of Business ( email )

6363 St. Charles Avenue
New Orleans, LA 70118
United States

HOME PAGE: http://researchforprofit.com

John Levendis

Loyola University New Orleans ( email )

6363 St. Charles Ave., box 15
New Orleans, LA 70118
United States

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