Abstract
We examine the links between stock prices and exchange rates in six East Asian countries by using a two-stage procedure to test for causality in variance. We cannot reject the null hypothesis of causality in the first and the second moment in any of the East Asian economies examined. Strong feedbacks in both directions are found in the case of Japan, Korea, Philippines and in the post-crisis sample of Indonesia and Malaysia. On the other hand, the results for Indonesia and Malaysia for the whole sample are consistent with the portfolio approach, with stock prices leading exchange rates in the variance. The opposite holds in Thailand. Despite the considerable heterogeneity, overall the results suggest that causality links are strong and in most cases bidirectional, particularly in the second moments. The implication is that exchange rate policies should not be implemented without taking into account the repercussions on the stock market, and viceversa.
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Caporale, G.M., Pittis, N., Spagnolo, N. (2004). Feedbacks between Stock Prices and Exchange Rates in the East Asian Markets. In: Tsoukis, C., Agiomirgianakis, G.M., Biswas, T. (eds) Aspects of Globalisation. Springer, Boston, MA. https://doi.org/10.1007/978-1-4419-8881-2_13
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DOI: https://doi.org/10.1007/978-1-4419-8881-2_13
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