BibTex RIS Cite

Impact of Exchange Rate on Stock Returns in Shenzhen Stock Exchange: Analysis Through ARDL Approach

Year 2019, Volume: 1 Issue: 2, 15 - 26, 01.04.2019

Muhammad Kamran Khan

Abstract

This research investigates the influence of exchange rate on the stock returns of Shenzhen stock exchange from January 2008 to December 2018 by utilizing ARDL model for checking the short run and the long run association between the study variables. The estimated ARDL results indicate that exchange rate has a negative and significant influence on the stock returns of Shenzhen stock exchange. Inflation and interest rate results indicate a negative and statistically significant effect on the stock returns. Based on the estimated results of this study it is recommended that the policy makers in Central bank needs to make such policies that helps to stabilize the exchange rate.

Keywords

Exchange Rate Interest Rate Inflation rate Stock returns ARDL

References

  • Aggarwal, R. (2003). Exchange rates and stock prices: A study of the US capital markets under floating exchange rates.
  • Aizenman, J., & Lee, J. (2010). Real exchange rate, mercantilism and the learning by doing externality. Pacific Economic Review, 15(3), 324-335.
  • Ambunya, P. L. (2012). The relationship between exchange rate movement and stock market returns volatility at the Nairobi Securities Exchange. Masters of Business Administration (MBA) project School of Business, University of Nairobi.
  • Barnor, C. (2014). The effect of macroeconomic variables on stock market returns in Ghana (2000-2013).
  • Benita, G., & Lauterbach, B. (2004). Policy Factors and Exchange Rate Volatility: Panel Data Verses a Specific Country Analysis, Research Unit. Foreign Exchange Activity Department, Bank of Israel, Jerusalem.
  • Bodnar, G. M., & Gentry, W. M. (1993). Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA. Journal of international Money and Finance, 12(1), 29-45.
  • Chirchir, D. K. (2011). The relationship between share prices and exchange rates: Evidence from Kenya. Unpublished MBA thesis. Nairobi: University of Nairobi.
  • Dimand, R. W. (2003). Irving Fisher on the international transmission of booms and depressions through monetary standards. Journal of money, credit and banking, 49-90.
  • Dwivedi, M. (2002). Exchange Rate Economics: What‟ s Wrong with the Conventional Macro Approach?”.
  • Fama, E. F. (1965). The behavior of stock-market prices. The journal of Business, 38(1), 34-105.
  • Fama, E. F. (1981). Stock returns, real activity, inflation, and money. The American economic review, 71(4), 545-565.
  • Fisher, I. (1930). The Theory of Interest (New York: Augustus M. Kelley, Publishers, 1965). Reprinted from the.
  • Frankel, J. A., & Rose, A. K. (2000). Estimating the effect of currency unions on trade and output (No. w7857). National Bureau of Economic Research.
  • Hau, H., & Rey, H. (2005). Exchange rates, equity prices, and capital flows. The Review of Financial Studies, 19(1), 273-317.
  • Hendry, D. F. (2001). Modelling UK inflation, 1875–1991. Journal of applied econometrics, 16(3), 255-275.
  • Ilahi, I., Ali, M., & Jamil, R. A. (2015). Impact of macroeconomic variables on stock market returns: A case of Karachi stock exchange. Available at SSRN 2583401.
  • Imbs, J., Mumtaz, H., Ravn, M. O., & Rey, H. (2003). Nonlinearities and real exchange rate dynamics. Journal of the European Economic Association, 1(2-3), 639-649.
  • Joseph, N. L. (2002). Modelling the impacts of interest rate and exchange rate changes on UK stock returns. Derivatives Use, Trading & Regulation, 7(4), 306-306.
  • Jumah, I. M. (2013). Effects Of Foreign Exchange Rate Fluctuation On Stock Returns Volatility: A Case Study Of Nairobi Securities Exchange (NSE) 1996-2012. Unpublished Doctoral Dissertation: University Of Nairobi.
  • Kanamori, T., Zhao, Z., & Asian Development Bank Institute. (2006). The renminbi exchange rate revaluation: Theory, practice and lessons from Japan (No. 9). Asian Development Bank Institute.
  • Karolyi, G. A. (2001). Why Stock Return Volatility Really Matters. Prepared for Inaugural Issue of Strategic Investor Relations. published by Institutional Investor Journals Series.
  • Kaul, G. (1987). Stock returns and inflation: The role of the monetary sector. Journal of financial economics, 18(2), 253-276.
  • Khan, M. K., Teng, J. Z., Parvaiz, J., & Chaudhary, S. K. (2017). Nexuses between Economic Factors and Stock Returns in China. International Journal of Economics and Finance, 9(9).
  • Kirui, E., Wawire, N. H., & Onono, P. O. (2014). Macroeconomic variables, volatility and stock market returns: a case of Nairobi securities exchange, Kenya. International Journal of Economics and Finance, 6(8), 214-228.
  • Kolari, J. W., Moorman, T. C., & Sorescu, S. M. (2008). Foreign exchange risk and the cross-section of stock returns. Journal of International Money and Finance, 27(7), 1074-1097.
  • Kuwornu, J. K. (2012). Effect of macroeconomic variables on the ghanaian stock market returns: A co-integration analysis.
  • Malkiel, B. G., & Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The journal of Finance, 25(2), 383-417.
  • Melvin, M., & Prins, J. (2015). Equity hedging and exchange rates at the London 4 pm fix. Journal of Financial Markets, 22, 50-72.
  • Muriu, P.W. (2003). Volatility of stock returns -an empirical analysis of NSE. Unpublished MA Thesis: University of Nairobi.
  • Mwangi, M., & Mwiti, J. K. (2015). The effect of voluntary disclosure on stock market returns of companies listed at the Nairobi securities exchange. International Journal of Business and Social Science, 6(1).
  • Ndung'u, N. S. (2001). Liberalization of the foreign exchange market in Kenya and the short-term capital flows problem. AERC.
  • Olweny, T., & Omondi, K. (2011). The effect of macro-economic factors on stock return volatility in the Nairobi stock exchange, Kenya. Economics and Finance review, 1(10), 34-48.
  • Osamwonyi, I. O., & Evbayiro-Osagie, E. I. (2012). The relationship between macroeconomic variables and stock market index in Nigeria. Journal of Economics, 3(1), 55-63.
  • Pal, K., & Mittal, R. (2011). Impact of macroeconomic indicators on Indian capital markets. The Journal of Risk Finance, 12(2), 84-97.
  • Pan, M. S., Fok, R. C. W., & Liu, Y. A. (2007). Dynamic linkages between exchange rates and stock prices: Evidence from East Asian markets. International Review of Economics & Finance, 16(4), 503-520.
  • Parlapiano, F., & Alexeev, V. (2013). M&A Announcements in Australia and Their Impact on Competitors.
  • Pesaran, M. H., & Shin, Y. (1996). Cointegration and speed of convergence to equilibrium. Journal of econometrics, 71(1-2), 117-143.
  • Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.
  • Pilinkus, D., & Boguslauskas, V. (2009). The short-run relationship between stock market prices and macroeconomic variables in Lithuania: an application of the impulse response function. Engineering Economics, 65(5).
  • Rahman, A. A., Sidek, N. Z. M., & Tafri, F. H. (2009). Macroeconomic determinants of Malaysian stock market. African Journal of Business Management, 3(3), 095-106.
  • Schwert, G. W. (2003). Anomalies and market efficiency. Handbook of the Economics of Finance, 1, 939-974.
  • Sekmen, F. (2011).Exchange Rate Volatility and Stock Returns for the United States. Adapazari: Sakarya University.
  • Sloman, J. (2007). Economics and the business environment. Pearson Education.
  • Solnik, B. (1987). Using financial prices to test exchange rate models: A note. The journal of Finance, 42(1), 141-149.
  • Taiwo, O., & Adesola, O. A. (2013). Exchange rate volatility and bank performance in Nigeria. Asian Economic and Financial Review, 3(2), 178.
  • Tucker, J. W. (2007). Is openness penalized? Stock returns around earnings warnings. The Accounting Review, 82(4), 1055-1087.
  • Tumwebaze, D. M. (2011). Foreign Exchange Volatility and Profitability Of Export Companies, A Case Of Maiyre Estate Limited. MBA Project.
  • Wang F. (2012). Determinants of Chinese Stock Market Returns. Unpublished MSc Thesis. Universiti Utara Malaysia
  • Willy, O. C. O. (2012). Macroeconomic fluctuations effects on the financial performance of listed manufacturing firms in Kenya.

Year 2019, Volume: 1 Issue: 2, 15 - 26, 01.04.2019

Muhammad Kamran Khan

Abstract

References

  • Aggarwal, R. (2003). Exchange rates and stock prices: A study of the US capital markets under floating exchange rates.
  • Aizenman, J., & Lee, J. (2010). Real exchange rate, mercantilism and the learning by doing externality. Pacific Economic Review, 15(3), 324-335.
  • Ambunya, P. L. (2012). The relationship between exchange rate movement and stock market returns volatility at the Nairobi Securities Exchange. Masters of Business Administration (MBA) project School of Business, University of Nairobi.
  • Barnor, C. (2014). The effect of macroeconomic variables on stock market returns in Ghana (2000-2013).
  • Benita, G., & Lauterbach, B. (2004). Policy Factors and Exchange Rate Volatility: Panel Data Verses a Specific Country Analysis, Research Unit. Foreign Exchange Activity Department, Bank of Israel, Jerusalem.
  • Bodnar, G. M., & Gentry, W. M. (1993). Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA. Journal of international Money and Finance, 12(1), 29-45.
  • Chirchir, D. K. (2011). The relationship between share prices and exchange rates: Evidence from Kenya. Unpublished MBA thesis. Nairobi: University of Nairobi.
  • Dimand, R. W. (2003). Irving Fisher on the international transmission of booms and depressions through monetary standards. Journal of money, credit and banking, 49-90.
  • Dwivedi, M. (2002). Exchange Rate Economics: What‟ s Wrong with the Conventional Macro Approach?”.
  • Fama, E. F. (1965). The behavior of stock-market prices. The journal of Business, 38(1), 34-105.
  • Fama, E. F. (1981). Stock returns, real activity, inflation, and money. The American economic review, 71(4), 545-565.
  • Fisher, I. (1930). The Theory of Interest (New York: Augustus M. Kelley, Publishers, 1965). Reprinted from the.
  • Frankel, J. A., & Rose, A. K. (2000). Estimating the effect of currency unions on trade and output (No. w7857). National Bureau of Economic Research.
  • Hau, H., & Rey, H. (2005). Exchange rates, equity prices, and capital flows. The Review of Financial Studies, 19(1), 273-317.
  • Hendry, D. F. (2001). Modelling UK inflation, 1875–1991. Journal of applied econometrics, 16(3), 255-275.
  • Ilahi, I., Ali, M., & Jamil, R. A. (2015). Impact of macroeconomic variables on stock market returns: A case of Karachi stock exchange. Available at SSRN 2583401.
  • Imbs, J., Mumtaz, H., Ravn, M. O., & Rey, H. (2003). Nonlinearities and real exchange rate dynamics. Journal of the European Economic Association, 1(2-3), 639-649.
  • Joseph, N. L. (2002). Modelling the impacts of interest rate and exchange rate changes on UK stock returns. Derivatives Use, Trading & Regulation, 7(4), 306-306.
  • Jumah, I. M. (2013). Effects Of Foreign Exchange Rate Fluctuation On Stock Returns Volatility: A Case Study Of Nairobi Securities Exchange (NSE) 1996-2012. Unpublished Doctoral Dissertation: University Of Nairobi.
  • Kanamori, T., Zhao, Z., & Asian Development Bank Institute. (2006). The renminbi exchange rate revaluation: Theory, practice and lessons from Japan (No. 9). Asian Development Bank Institute.
  • Karolyi, G. A. (2001). Why Stock Return Volatility Really Matters. Prepared for Inaugural Issue of Strategic Investor Relations. published by Institutional Investor Journals Series.
  • Kaul, G. (1987). Stock returns and inflation: The role of the monetary sector. Journal of financial economics, 18(2), 253-276.
  • Khan, M. K., Teng, J. Z., Parvaiz, J., & Chaudhary, S. K. (2017). Nexuses between Economic Factors and Stock Returns in China. International Journal of Economics and Finance, 9(9).
  • Kirui, E., Wawire, N. H., & Onono, P. O. (2014). Macroeconomic variables, volatility and stock market returns: a case of Nairobi securities exchange, Kenya. International Journal of Economics and Finance, 6(8), 214-228.
  • Kolari, J. W., Moorman, T. C., & Sorescu, S. M. (2008). Foreign exchange risk and the cross-section of stock returns. Journal of International Money and Finance, 27(7), 1074-1097.
  • Kuwornu, J. K. (2012). Effect of macroeconomic variables on the ghanaian stock market returns: A co-integration analysis.
  • Malkiel, B. G., & Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The journal of Finance, 25(2), 383-417.
  • Melvin, M., & Prins, J. (2015). Equity hedging and exchange rates at the London 4 pm fix. Journal of Financial Markets, 22, 50-72.
  • Muriu, P.W. (2003). Volatility of stock returns -an empirical analysis of NSE. Unpublished MA Thesis: University of Nairobi.
  • Mwangi, M., & Mwiti, J. K. (2015). The effect of voluntary disclosure on stock market returns of companies listed at the Nairobi securities exchange. International Journal of Business and Social Science, 6(1).
  • Ndung'u, N. S. (2001). Liberalization of the foreign exchange market in Kenya and the short-term capital flows problem. AERC.
  • Olweny, T., & Omondi, K. (2011). The effect of macro-economic factors on stock return volatility in the Nairobi stock exchange, Kenya. Economics and Finance review, 1(10), 34-48.
  • Osamwonyi, I. O., & Evbayiro-Osagie, E. I. (2012). The relationship between macroeconomic variables and stock market index in Nigeria. Journal of Economics, 3(1), 55-63.
  • Pal, K., & Mittal, R. (2011). Impact of macroeconomic indicators on Indian capital markets. The Journal of Risk Finance, 12(2), 84-97.
  • Pan, M. S., Fok, R. C. W., & Liu, Y. A. (2007). Dynamic linkages between exchange rates and stock prices: Evidence from East Asian markets. International Review of Economics & Finance, 16(4), 503-520.
  • Parlapiano, F., & Alexeev, V. (2013). M&A Announcements in Australia and Their Impact on Competitors.
  • Pesaran, M. H., & Shin, Y. (1996). Cointegration and speed of convergence to equilibrium. Journal of econometrics, 71(1-2), 117-143.
  • Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.
  • Pilinkus, D., & Boguslauskas, V. (2009). The short-run relationship between stock market prices and macroeconomic variables in Lithuania: an application of the impulse response function. Engineering Economics, 65(5).
  • Rahman, A. A., Sidek, N. Z. M., & Tafri, F. H. (2009). Macroeconomic determinants of Malaysian stock market. African Journal of Business Management, 3(3), 095-106.
  • Schwert, G. W. (2003). Anomalies and market efficiency. Handbook of the Economics of Finance, 1, 939-974.
  • Sekmen, F. (2011).Exchange Rate Volatility and Stock Returns for the United States. Adapazari: Sakarya University.
  • Sloman, J. (2007). Economics and the business environment. Pearson Education.
  • Solnik, B. (1987). Using financial prices to test exchange rate models: A note. The journal of Finance, 42(1), 141-149.
  • Taiwo, O., & Adesola, O. A. (2013). Exchange rate volatility and bank performance in Nigeria. Asian Economic and Financial Review, 3(2), 178.
  • Tucker, J. W. (2007). Is openness penalized? Stock returns around earnings warnings. The Accounting Review, 82(4), 1055-1087.
  • Tumwebaze, D. M. (2011). Foreign Exchange Volatility and Profitability Of Export Companies, A Case Of Maiyre Estate Limited. MBA Project.
  • Wang F. (2012). Determinants of Chinese Stock Market Returns. Unpublished MSc Thesis. Universiti Utara Malaysia
  • Willy, O. C. O. (2012). Macroeconomic fluctuations effects on the financial performance of listed manufacturing firms in Kenya.
There are 49 citations in total.

Details

Primary Language English
Journal Section Research Article
Authors

Muhammad Kamran Khan This is me

Publication Date April 1, 2019
Published in Issue Year 2019 Volume: 1 Issue: 2

Cite

APA Khan, M. K. (2019). Impact of Exchange Rate on Stock Returns in Shenzhen Stock Exchange: Analysis Through ARDL Approach. International Journal of Economics and Management, 1(2), 15-26.