Stock Prices and Exchange Rate Dynamics
40 Pages Posted: 18 Dec 2000
Date Written: 2000
We study the long-run and short-run dynamics between stock prices and exchange rates and the channels through which exogenous shocks impact on these markets. We apply the analysis to a group of Pacific Basin countries and examine whether foreign exchange controls and the Asian financial crisis of mid 1997 affected the links between the markets. The evidence shows that the US stock market acts as a conduit through which the foreign exchange market and the local stock markets are linked. It also provides support for a close relationship between financial and economic integration. Finally, the evidence shows that the financial crisis had a temporary effect on the long-run comovement between the various markets.
Keywords: Stock markets, foreign exchange markets, capital market integration, Asian financial crisis, and Pacific Basin capital markets
JEL Classification: F21, F31, F36
Suggested Citation: Suggested Citation