Do exchange rate changes have symmetric or asymmetric effects on stock prices? |
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| Institution: | 1. Bank of Thailand, Thailand;2. Thammasat University, Bangkok, Thailand;3. Great Valley School of Graduate Professional Studies, Pennsylvania State University, 30 E. Swedesford Road, Malvern, PA 19355, United States;4. China Huarong Asset Management Co., Beijing, China;1. School of International Business, Zhejiang Financial College, Hangzhou 310018, China;2. School of Business Administration, Zhejiang Gongshang University, Hangzhou 310018, China;3. Research Center for Regional Financial Development, Zhejiang Financial College, Hangzhou 310018, China;4. Academy of Financial Research, Zhejiang University, Hangzhou 310058, China |
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| Abstract: | Several macro variables have been identified as determinants of stock prices and exchange rate is among them. Exchange rate changes can affect different firms differently depending on whether they are export oriented or they use heavily imported inputs. Therefore, the overall effects of exchange rate changes on an aggregate stock price index could be in either direction. Previous research assumed that exchange rate changes have symmetric effects on stock prices. In this paper after introducing nonlinearity into adjustment process and after using Nonlinear ARDL approach to cointegration and error-correction modeling combined with monthly data from Brazil, Canada, Chile, Indonesia, Japan, Korea, Malaysia, Mexico, and the U.K., we show that exchange rate changes have asymmetric effects on stock prices, though the effects are mostly short-run. |
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