Exchange Rate Movements and International Interdependence of Stock Markets
53 Pages Posted: 15 Feb 2006
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies
By Stephen Turnovsky, Tamer Basar, ...
-
Monetary and Fiscal Policy Under Perfect Foresight: a Symmetric Two Country Analysis
-
Monetary and Fiscal Policy Design Under Emu: A Dynamic Game Approach
By Bas Van Aarle, Jacob C. Engwerda, ...