Journal of Finance and Investment Analysis

On the co-movements among Stock prices and exchange rates cointegration: a VAR/VECM approach

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  • Abstract

    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.