Interplay between Stock Prices and Exchange Rate movements: Evidence from Pakistan
Article Sidebar
Main Article Content
Abstract
This study is considered the interplay among stock prices and exchange rates movement in perspective of Pakistan. Interrelation of both sides of these two financial variables are discovered. Monthly time series data from July 1992 to June 2018 of USD/PKR and the index values of PSE (KSE 100 index) are used in this study. To check out the stationarity of variables augmented dicky-fuller unit root test is applied and Johansson’s cointegration technique in vector autoregressive model is used and granger causality test used to consider the movements of stock prices and exchange rates and flow of these variables onto each other. Results of these analysis confess that there is no cointegration in stock prices and exchange rates and the stock prices do not granger cause to exchange rates and exchange rates do not granger cause to stock prices. These two financial variables do not impact on the performance of each other and not have ability to change the direction of each other because of the developing economy of Pakistan. These findings are valuable for econometrics, policy makers and stakeholders.
Article Details
References
Abdalla, I. S. and V. Murinde (1997). "Exchange rate and stock price interactions in emerging financial markets: evidence on India, Korea, Pakistan and the Philippines." Applied financial economics7(1): 25-35.
Afshan, S., et al. (2018). "Time–frequency causality between stock prices and
exchange rates: Further evidences from cointegration and wavelet analysis."
Physica A: Statistical Mechanics and its Applications495: 225-244.
Ajayi, R. A., et al. (1998). "On the relationship between stock returns and exchange rates: tests of Granger causality." Global finance journal9(2): 241-251.
Ajayi, R. A. and M. Mougou? (1996). "On the dynamic relation between stock prices and exchange rates." Journal of Financial Research19(2): 193-207.
Bahmani-Oskooee, M. and I. Domac (1997). "Turkish stock prices and the value of Turkish Lira." Canadian Journal of Development Studies/Revue canadienne d'études du développement18(1): 139-150.
Bahmani-Oskooee, M. and S. Saha (2018). "On the relation between exchange rates and stock prices: a non-linear ARDL approach and asymmetry analysis." Journal of Economics and Finance42(1): 112-137.
Bahmani-Oskooee, M. and A. Sohrabian (1992). "Stock prices and the effective exchange rate of the dollar." Applied economics24(4): 459-464.
Bayer, C. and C. Hanck (2013). "Combining non?cointegration tests." Journal of Time Series Analysis34(1): 83-95.
Bhat, K. U. and S. Z. A. Shah (2015). "Empirical investigation of the relationship between exchange rate movements and Stock market volatility in the context of Pakistan." Pakistan Business Review: 814.
Branson, J. (1977). "JG Branson et al., Phys. Rev. Lett. 38, 1334 (1977)." Phys. Rev. Lett.38: 1331.
Chkili, W. (2012). "The dynamic relationship between exchange rates and stock returns in emerging countries: volatility spillover and portfolio management." International Journal of Management Science and Engineering Management7(4): 253-262.
Dash, M. and A. K. Sahu (2018). "A study of the interaction between exchange rates and stock market prices." International Journal of Economics and Business Research15(4): 541-549.
Dickey, D. A. and W. A. Fuller (1979). "Distribution of the estimators for autoregressive time series with a unit root." Journal of the American statistical association74(366a): 427-431.
Dornbusch, R. and S. Fisher (1980). Exchange Rates and the Current Account. American Economic Review, vol.
Eiteman, D. (2004). "Stonehill and MH Moffet." Multinational Business Finance.
Farooq, M. T., et al. (2004). "Linkage between Stock Market Prices and Exchange Rate: A Causality Analysis for Pakistan [with Comments]." The Pakistan Development Review: 639-649.
Franck, P. and A. Young (1972). "Stock price reaction of multinational firms to exchange realignments." Financial Management: 66-73.
Gatsi, J. G., et al. (2016). "Exchange Rates and Stock Prices in Ghana." Journal of Applied Business and Economics18(3): 63-76.
Granger, C. W. (1980). "Testing for causality: a personal viewpoint." Journal of Economic Dynamics and control2: 329-352.
Granger, C. W., et al. (2000). "A bivariate causality between stock prices and exchange rates: evidence from recent Asianflu?." The Quarterly Review of Economics and Finance40(3): 337-354.
Gregory, A. W. and B. E. Hansen (1996). "Practitioners corner: tests for cointegration in models with regime and trend shifts." Oxford bulletin of Economics and Statistics58(3): 555-560.
Huy, T. Q. (2016). "The linkage between exchange rates and stock prices: Evidence from Vietnam." Asian Economic and Financial Review6(7): 363.
Johansen, S. (1992). "Cointegration in partial systems and the efficiency of single-equation analysis." Journal of econometrics52(3): 389-402.
Krishnamurthy, P., et al. (2017). Study on relationship between exchange rate return and various stock indices returns. 2017 International Conference on Data Management, Analytics and Innovation (ICDMAI), IEEE.
Kwiatkowski, D., et al. (1992). "Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root?" Journal of econometrics54(1-3): 159-178.
Lee, M., et al. (2004). "Aerobic production of alanine by Escherichia coli aceF ldhA mutants expressing the Bacillus sphaericus alaD gene." Applied microbiology and biotechnology65(1): 56-60.
Li, X., et al. (2018). "Do short-term international capital movements play a role in exchange rate and stock price transmission mechanism in China?" International Review of Economics & Finance.
Liaquat, H., Irfan, A., & Sami, A. (2017). Technical Efficiency And Its Determinants: A Case Study Of Faisalabad Textile Industry. City University Research Journal, Special Issue, 183-194
Lou, T. and W. Luo (2018). "Revisiting Quantile Granger Causality Between the Stock Price Indices and Exchange Rates for G7 Countries." Asian Economic and Financial Review8(1): 8-21.
Ma, X., et al. (2018). "The impact of Chinese financial markets on commodity currency exchange rates." Global finance journal.
Momayez, S. (2014). "Relationship Between the US Stock Market and the Euro Exchange Rate."
Muhammad, N., et al. (2002). "Stock Prices and Exchange Rates: Are they Related? Evidence from South Asian Countries [with Comments]." The Pakistan Development Review: 535-550.
Parsva, P. and H. H. Lean (2017). "Multivariate causal relationship between stock prices and exchange rates in the middle east." The Journal of Asian Finance, Economics and Business (JAFEB)4(1): 25-38.
Phillips, P. C. and P. Perron (1988). "Testing for a unit root in time series regression." Biometrika75(2): 335-346.
Ramasamy, B. and M. C. Yeung (2005). "The causality between stock returns and exchange rates: revisited." Australian Economic Papers44(2): 162-169.
Richards, N., et al. (2007). "The interaction between exchange rates and stock princes: An Australian context."
Soenen, L. A. and E. S. Hennigar (1988). "An analysis of exchange-rates and stock-prices-the united-states experience between 1980 and 1986." Akron Business and Economic Review19(4): 7-16.
Sui, L. and L. Sun (2016). "Spillover effects between exchange rates and stock prices: Evidence from BRICS around the recent global financial crisis." Research in International Business and Finance36: 459-471.
Tang, X. and X. Yao (2018). "Do financial structures affect exchange rate and stock price interaction? Evidence from emerging markets." Emerging Markets Review34: 64-76.
Tudor, C. and C. Popescu-Dutaa (2012). "On the causal relationship between stock returns and exchange rates changes for 13 developed and emerging markets." Procedia-Social and Behavioral Sciences57: 275-282.