Exchange Rates and Stock Prices in the Long Run and Short Run

Research output: Working paper

Abstract

Using the ARDL bounds testing approach to cointegration this paper provides evidence of a stable long run relationship between the exchange rate and stock prices for the UK, Japan and Swiss currencies with respect to the US dollar. The resultant error correction models suggest a positive relationship between stock prices and the exchange rate, which in an out-of-sample forecast outperforms the random walk. We compare these results with a similar model incorporating interest rates, suggested by Solnik (1987), however this does not in general improve the results.
LanguageEnglish
Place of PublicationBath, U. K.
PublisherDepartment of Economics, University of Bath
StatusPublished - 2009

Publication series

NameBath Economics Research Working Papers
No.5/09

Fingerprint

Short-run
Exchange rates
Bounds testing
Out-of-sample forecasting
Currency
Stock prices
Interest rate models
Random walk
Autoregressive distributed lag model
Japan
Cointegration
Long-run relationship

Keywords

  • Stock Prices
  • Forecast
  • Cointegration
  • Exchange Rates

Cite this

Morley, B. (2009). Exchange Rates and Stock Prices in the Long Run and Short Run. (Bath Economics Research Working Papers; No. 5/09). Bath, U. K.: Department of Economics, University of Bath.

Exchange Rates and Stock Prices in the Long Run and Short Run. / Morley, Bruce.

Bath, U. K. : Department of Economics, University of Bath, 2009. (Bath Economics Research Working Papers; No. 5/09).

Research output: Working paper

Morley, B 2009 'Exchange Rates and Stock Prices in the Long Run and Short Run' Bath Economics Research Working Papers, no. 5/09, Department of Economics, University of Bath, Bath, U. K.
Morley B. Exchange Rates and Stock Prices in the Long Run and Short Run. Bath, U. K.: Department of Economics, University of Bath. 2009, (Bath Economics Research Working Papers; 5/09).
Morley, Bruce. / Exchange Rates and Stock Prices in the Long Run and Short Run. Bath, U. K. : Department of Economics, University of Bath, 2009. (Bath Economics Research Working Papers; 5/09).
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