The nexus between exchange rates and stock markets: evidence from the euro-dollar rate and composite European stock indices using rolling analysis |
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Authors: | Christos Kollias Nikolaos Mylonidis Suzanna-Maria Paleologou |
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Institution: | (1) Department of Economics, University of Thessaly, Korai 43 str, 38333 Volos, Greece;(2) Department of Economics, University of Ioannina, 45110 Ioannina, Greece |
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Abstract: | Both the goods market hypothesis and the portfolio balance theory, suggest a nexus between exchange rates and stock prices,
albeit with a different direction of causality. This paper, using daily data, takes up the issue of the linkages between stock
prices and exchange rates in the case of the euro-dollar rate and two composite European stock market indices: the FTSE Eurotop
300 and FTSE eTX All-Share Index. It addresses the causal ordering issue between the two markets using rolling unit root,
cointegration and Granger causality tests. This methodological approach allows for the emergence of a clearer picture of the
possible dynamic linkages between exchange rates and stock prices. The empirical results provide evidence of time-varying
causality between the two markets. |
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Keywords: | |
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