Dynamic Relationship between Stock Prices and Exchange Rates: Evidence from Chinese Stock Markets
Journal of Asian Finance, Economics and Business, Vol. 1, No. 1, pp. 5-14. DOI: 10.13106/jafeb.2014.vol1.no1.5
10 Pages Posted: 15 Nov 2015 Last revised: 18 Dec 2017
Date Written: February 28, 2014
This paper empirically examines the short-run and long-run causal relationship between stock market prices and exchange rates in Chinese stock markets using monthly data from January 2002 to December 2012 retrieved from the National Bureau of Statistics of the People’s Republic of China. Unit root, cointegration tests, vector error correction estimates, block exogeneity Wald tests, impulse responses, variance decomposition techniques and structural break tests are employed. This study found 1) long-run causality from exchange rates to stock prices in Chinese stock markets and 2) short-run causality from Japanese yen and Korean won exchange rates to stock prices in the Shanghai Stock Exchange strongly prevails while in the Shenzhen Stock Exchange weakly prevails . The impact of the global financial crisis from 2007 to 2009 on Chinese stock markets was insignificant.
Keywords: stock prices, exchange rates, cointegration, Granger causality, structural breaks, China
JEL Classification: E44, F31, F37, G01, G15
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