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

See all articles by Jung Wan Lee

Jung Wan Lee

Boston University - Department of Administrative Sciences

Tianyuan Frederic Zhao

Boston University - Department of Administrative Sciences

Date Written: February 28, 2014

Abstract

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

Suggested Citation

Lee, Jung Wan and Zhao, Tianyuan Frederic, Dynamic Relationship between Stock Prices and Exchange Rates: Evidence from Chinese Stock Markets (February 28, 2014). Journal of Asian Finance, Economics and Business, Vol. 1, No. 1, pp. 5-14. DOI: 10.13106/jafeb.2014.vol1.no1.5. Available at SSRN: https://ssrn.com/abstract=2690463

Jung Wan Lee (Contact Author)

Boston University - Department of Administrative Sciences ( email )

808 Commonwealth Avenue
Boston, MA 02215
United States
617 358 5627 (Phone)
617 353 6840 (Fax)

HOME PAGE: http://www.bu.edu/met

Tianyuan Frederic Zhao

Boston University - Department of Administrative Sciences ( email )

United States

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