Email this article 
Hide
Show all
Dynamic Links between Exchange Rates and Stock Prices in Malaysia: An Asymmetric Cointegration analysis
Abstract
Abstract. The present article used a monthly data and applied Enders and Siklos (2001) asymmetric cointegration analysis to examine the impact of exchange rates on stock prices in Malaysia for the period of 1999-2014. The result suggests that variables were cointegrated based on Engle-granger two step technique. Moving to threshold auto regressive (TAR) and momentumthreshold auto regressive (M-TAR) the finding reveals that based on the latter variables were asymmetrically cointegrated as null hypothesis of no cointegration was rejected at 1% significance level based on Enders and Siklos (2001), while the former shows that variables do not have long-run relationship and the speed of adjustment is symmetric. This signifies that increase in the prices of shares in Malaysian stock market could lead to Malaysian Ringgit appreciation over other major global currencies. The stocks will become more expensive and discourage foreign investors’ participation in the market which inhibits the influx of stable foreign capital into Malaysian financial system. The implication is that regulators should ensure that adequate and efficient policies are put in place in order to keep the Ringgit exchange rates at optimal level so as to enhance the participation of foreign investors and improve market competitiveness.
Keywords. Stock prices, Exchange rates, Asymmetric, Cointegration, Malaysia.
JEL. F18, F21, F23, O47.Full Text:
Zotero
MendeleyReferences
Aggarwal, R. (1981). Exchange rates and stock prices: A study of the United States capital markets under floating exchange rates. Akron Business and Economic Review, 12(Fall), 7–12.
Ajayi, R. A., Friedman, J., & Mehdian, S. M. (1998). On the relationship between stock returns and exchange rates: Test of Granger causality. Global Finance Journal, 9(2), 241–251. doi: 10.1016/S1044-0283(98)90006-0
Alagidede, P., Panagiotidis, T., & Zhang, X. (2011). Causal relationship between stock prices and exchange rates. The Journal of International Trade & Economic Development, 20(1), 67-86. doi: 10.1080/09638199.2011.538186
Branson, W. H. & Henderson, D. W. (1985): The Specification and Influence of Assets Markets. In: Jones, R. W. – Kenen, P. B. (eds.): Handbook of International Economics. Vol. 2.Amsterdam, Elsevier, 1985, pp. 179–201.
Chiang, T. C., & Yang, S.-Y.(2003). Foreign exchange risk premiums and time-varying equity market risks. International Journal of Risk Assess. Management, 4(4), 310–331. doi: 10.1504/IJRAM.2003.003828
Dornbusch, R. (1976). Expectations and Exchange Rate Dynamics. Journal of Political Economy, 84(6), 1161–1176.
Donnelly, R., & Sheehy, E. (1996). The share price reaction of U.K. exporters to exchange rate movements: An empirical study. Journal of International of Business Studies, 27, 157–165. doi:10.1057/palgrave.jibs.8490130
Dornbusch, R., & Fisher, S. (1980), Exchange Rates and the Current Account. American Economic Review, 70, 960–971.
Enders, W., & Siklos, P., (2001).Cointegration and threshold adjustment. Journal of Business and Economic Statistics, 19(2), 166–176. doi: 10.1198/073500101316970395
Engle, R.F., & Granger, C.W.J. (1987). Cointegration and error-correction: Representation, estimation and testing. Econometrica, 55, 251–276.
Frankel, J. (1976). A monetary approach to the exchange rate: Doctrinal aspects and empirical evidence. Scandinavian Journal of Economics, 78, 200–224.
Frankel, J. (1979). On the Mark: A theory of floating exchange rates based on real interest differentials. American Economic Review, 69, 610–622.
Frankel, J. (1983). Monetary and Portfolio Balance Models of Exchange Rate Determination. In: Bhandari, J. – Putnam, B. (eds.): Economic Interdependence and Flexible Exchange Rates. Cambridge (MA), MIT Press, pp. 84–114.
Nieh, C.C., & Lee, C.F. (2001). Dynamic relationship between stock prices and exchange rates for G-7 countries. The Quarterly Review of Economics and Finance, 41, 477–490. doi: 10.1016/S1062-9769(01)00085-0
Ndako, U. B. (2013). Dynamics of stock prices and exchange rates relationship: evidence from five sub-Saharan African financial markets. Journal of African Business, 14(1), 47-57. doi: 10.1080/15228916.2013.765322
Phylaktis, K., & Ravazzolo, F. (2005). Stock prices and exchange rate dynamics. Journal of International Money and Finance, 24(7), 1031–1053. doi: 10.1016/j.jimonfin.2005.08.001
Rahman, M. L., & Uddin, J. (2009). Dynamic relationship between stock prices and exchange rates: evidence from three south Asian countries. International Business Research, 2(2), P167.
Smyth, R., & Nandha, M. (2003). Bivariate causality between exchange rates and stock prices in South Asia. Applied Economics Letters, 10(11), 699–704. doi: 10.1080/1350485032000133282
Soenen, L., & Hennigar, E. (1988). An analysis of exchange rates and stock prices: The US experience between 1980 and 1986. Akron Business and Economics Review, 19, 7–16.
World Federation of Exchanges (2015) Accessed on 23-06-2015 through: http://www.world-exchanges.org/news-views/bursa-malaysia-first-quarter-2010
DOI: http://dx.doi.org/10.1453/jepe.v2i3.357
Refbacks
- There are currently no refbacks.
.......................................................................................................................................................................................................................................................................................................................................
Journal of Economics and Political Economy - J. Econ. Pol. Econ. - JEPE - www.kspjournals.org
ISSN: 2148-8347
Editor: [email protected] Secretarial: [email protected] Istanbul - Turkey.
Copyright © KSP Library
