EXCHANGE RATE AND STOCK PRICE INTERACTION IN MAJOR ASIAN MARKETS: EVIDENCE FOR INDIVIDUAL COUNTRIES AND PANELS ALLOWING FOR STRUCTURAL BREAKS

摘要

This article examines the relationship between exchange rates and stock prices in eight Asian countries. We test for cointegration and Granger causality for both individual countries using the Gregory and Hansen cointegration test that accommodates a structural break in the cointegrating vector, and for a panel using the Westerlund panel Lagrange multiplier (LM) cointegration test that allows for multiple structural breaks in the level of the individual cointegrating equations. Our results for individual countries suggest that the only country for which exchange rates and stock prices are cointegrated over the entire period is Korea where there is a weak long-run unidirectional Granger causality running from exchange rates to stock prices. Employing the panel LM cointegration test with multiple structural breaks, we find that exchange rates and stock prices are not cointegrated. We conclude that for the eight Asian countries, exchange rates and stock prices primarily have only a contemporaneous effect on each other that is reflected in the short-run intertemporal comovements between these financial variables.