In this paper, based on the cointegration test, the causality test and
the VECM model, we have shown that there is a two-way causality and a long-term
relationship between the stock market and the exchange rate of each country.
Our results lead to important implications from the point of view of investors
and policy makers. They are highly relevant to the financial decisions of
international investors on the management of their risks exposed to
fluctuations in exchange rates and stock prices and on the benefits of
potential diversification opportunities that may arise due to the decline in
dependence between exchange rates and stock prices.
JEL classification numbers:
C1, C53, F37, G15
Keywords: Exchange rates, Stock Prices, VECM Model, Granger Causality.