Impact of exchange rate volatility on stock market

In line with the Taylor rule framework, this study examines the interactions between the industrial production growth rate, consumer price inflation, short-term interest rates, stock returns and exchange rate volatility by employing PVAR methodology for 10 OECD countries outside the Euro area Canada, Czech Republic, Iceland, Israel, Korea, Mexico, Norway, Poland, Sweden and the United Kingdom. Hide Show all. Hammoudeh, S. Additionally, the completion of ERPT is determined by the assumptions of perfectly competitive markets, fully flexible prices and the consistency of law of one price. Choi, D. Tambakis and Tarashev [ 14 ] employed a small open-economy model that is subject to domestic and foreign shocks.

Studies in Development Economies and Policy. Despite exchange rates highly influencing inflation trends through the changes in import prices, impulse response analysis did not detect a statistically significant effect of exchange rate measures on inflation. After the recent financial crisis, it has become necessary to develop the UIP rule by adding new variables in line with [ 6 ]. Secondary data are employed, comprising of monthly data on macroeconomics variables and stock market returns volatility, covering the period, On the basis of their model, [ 12 ] found that the foreign Taylor rule responded to exchange rate variation but the domestic Taylor rule did not and the model performed better. Publication Year

User Username Password. Because VDCs showed that industrial production growth is also important to the variation in the immediate interest rate difference, I can assert that it might be useful to study the effects of supply and demand shocks in the open-economy framework by the DSGE. Taylor, Bulletin of Economic Research. Emerging markets are highly volatile due to the unstable microeconomic environment Molla and Mobarek As was noted in chapter 3, section 3.

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Dynamic relationship between stock prices and exchange rates for G7 countries. The data frequency selected ensured an adequate number of observations. In a similar approach, [ 13 ] incorporated an open macroeconomic model and it was indicated that UIP puzzle became more pronounced when the monetary policy rule was stricter against inflation. More About Us. Mahmoud et al. Journal Help. International Journal of Business and Management, 5 12 , 62 —
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Macroeconomic variables and Malaysian equity market: a view through rolling subsamples. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation. The ordering of the variables in the vector is expressed as , implying that the critical importance is given to the exchange rate volatility in my study. Mediterranean Journal of Social Sciences. Thus, exchange rate volatility may not have a significant impact on the direction or the supply and demand that can change the price level permanently. When the scientific literature is examined, it has been recognized that there have been various studies examining the consistency UIP and focusing on the determination of factors which may lead to deviations from the rule.
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Email this article Login required. The Pakistan Development Review. Prime overdraft rate and total mining production were found to have a negative impact on Market capitalisation. Bai and Koong [ 37 ] found that there was a significant parallel inverse relation between the US stock market and the dollar and between the China stock market and the exchange rate. Most recently, [ 15 ] examined the interactions between interest rates and exchange rates using wavelet-based methodologies for the case of Romania. Abstract: The study looked at the relationship between Stock Markets and Foreign Exchange market, and determined whether movements in exchange rates have an effect on stock market in Ghana. Econometric Theory.
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The robustness of the results was verified because alternative frequency component indexes showed little difference from my IDFT analysis. Again, interest rate is negatively correlated with both inflation and exchange rate, while inflation is positively correlated with exchange rate. On the other hand, interactions between exchange rates and interest rates can be examined without being limited by the UIP theory because the central banks in emerging countries tend to employ the interest rate and exchange rate policies in order to maintain price stability. Help us Corrections Found an error or omission? International Review of Financial Analysis, 20 23 , —
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Choi, D. International Review of Financial Analysis, 20 23 , — I firstly performed panel unit root analysis to determine the appropriate type of my empirical model. Introducing financial variables other than exchange rates particularly into the Taylor rule to explore the linkages among economic activity and the financial sector has become familiar practice in the monetary policy setting [ 1 , 2 , 3 ]. Moreover, the expected volatility of a security return plays an important role in option pricing theory. The main finding of this paper shows that there exists an efficient hedge regime. User Username Password.
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