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Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America

Year 2017, Volume: 7 Issue: 2, 437 - 447, 01.06.2017

Abstract

We analyse the interrelationship between stock prices and exchange rates in the only two Caribbean countries with stock market and floating exchange rates: Jamaica and Trinidad and Tobago. We also study the same four Latin American countries as in Diamandis and Drakos (2011). Using their model, our results show a very mild relationship between both variables in Jamaica, Trinidad and Tobago, Argentina and Brazil, but we cannot find any relationship in the other countries as in Diamantis and Drakos (2011). However, when we extend their model including a GARCH component to examine the impact of volatility, our results changed drastically: stock prices significantly impacted the exchange rate in the tranquil sub-period and the full period for Jamaica, over all three periods for Trinidad and Tobago and in the tranquil period for Argentina, Mexico and Chile. This shows the importance of incorporating volatility explicitly in the model. Our results have the policy implications that governments in the previous countries should try to prevent a currency crisis by stimulating economic growth and the expansion of the stock market to attract capital inflow as in Lin (2012).

Year 2017, Volume: 7 Issue: 2, 437 - 447, 01.06.2017

Abstract

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Details

Other ID JA59AD42UB
Journal Section Research Article
Authors

Andre Yone Haughton This is me

Emma M. Iglesias This is me

Publication Date June 1, 2017
Published in Issue Year 2017 Volume: 7 Issue: 2

Cite

APA Haughton, A. Y., & Iglesias, E. M. (2017). Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America. International Journal of Economics and Financial Issues, 7(2), 437-447.
AMA Haughton AY, Iglesias EM. Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America. IJEFI. June 2017;7(2):437-447.
Chicago Haughton, Andre Yone, and Emma M. Iglesias. “Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America”. International Journal of Economics and Financial Issues 7, no. 2 (June 2017): 437-47.
EndNote Haughton AY, Iglesias EM (June 1, 2017) Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America. International Journal of Economics and Financial Issues 7 2 437–447.
IEEE A. Y. Haughton and E. M. Iglesias, “Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America”, IJEFI, vol. 7, no. 2, pp. 437–447, 2017.
ISNAD Haughton, Andre Yone - Iglesias, Emma M. “Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America”. International Journal of Economics and Financial Issues 7/2 (June 2017), 437-447.
JAMA Haughton AY, Iglesias EM. Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America. IJEFI. 2017;7:437–447.
MLA Haughton, Andre Yone and Emma M. Iglesias. “Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America”. International Journal of Economics and Financial Issues, vol. 7, no. 2, 2017, pp. 437-4.
Vancouver Haughton AY, Iglesias EM. Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America. IJEFI. 2017;7(2):437-4.