Exchange Rate Movements and International Interdependence of Stock Markets

53 Pages Posted: 15 Feb 2006

See all articles by Jagdeep S. Bhandari

Jagdeep S. Bhandari

Wake Forest University - School of Law; International Monetary Fund (IMF)

Hans Genberg

University of Geneva - Graduate Institute of International Studies (HEI)

Date Written: May 12, 1989

Abstract

This paper investigates linkages between stock markets in seven industrialized countries since 1974. Empirical evidence shows that both nominal and real stock prices (and returns) are strongly positively correlated across countries, and that nominal exchange rate changes do not have systematic effects on nominal stock prices. A two-country theoretical model is developed and an attempt is made to reconcile the empirical findings with the properties of this model. Independent evidence on the main sources of shocks is used to argue that the time-varying correlation in the data can be reconciled with the predictions of the theory.

JEL Classification: 431, 431, 431

Suggested Citation

Bhandari, Jagdeep S. and Genberg, Hans, Exchange Rate Movements and International Interdependence of Stock Markets (May 12, 1989). IMF Working Paper No. 89/44, Available at SSRN: https://ssrn.com/abstract=884783

Jagdeep S. Bhandari (Contact Author)

Wake Forest University - School of Law ( email )

P.O. Box 7206
Winston-Salem, NC 27109
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Hans Genberg

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland
+41 22 908 5928 (Phone)

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