The Relationship Between Stock Prices and the Real Exchange Rate Index in BRICS Countries: Symmetric and Asymmetric Causality Analysis

Year 2020, Volume: 27 Issue: 3, 573 - 586, 25.12.2020

Mehmet Songur , Burak Sertkaya

https://doi.org/10.18657/yonveek.763848

Abstract

This study investigates the causality relationship between the real exchange rate index and stock prices in Brazil, Russia, India, China, and South Africa (BRICS) countries over the period from March 2003 to June 2018. The relationship between the variables was made with symmetrical and asymmetrical causality tests within the framework of traditional approach and portfolio balance approach. Accordingly, Hacker-Hatemi-J (2006) test was used for symmetric analysis and Hatemi-J (2012) causality test was used for asymmetric analysis. According to the results of the analysis, the causality relationship between the mentioned variables is different in BRICS countries. The findings do not provide definitive evidence in favor of the traditional approach or portfolio balance approach. Also, it can be stated that there are noisy transactions in these two markets
Key Words: BRICS, Stock Prices, Real Effective Exchange Rate, Symmetric and Asymmetric Causality Analysis
JEL Classification: C32, F31, G10, G15

Keywords

BRICS, Stock Prices, Real Exchange Rate Index, Symmetric and Asymmetric Causality Analysis

BRICS Ülkelerinde Hisse Senedi Fiyatları ile Reel Döviz Kuru Endeksi Arasındaki İlişki: Simetrik ve Asimetrik Nedensellik Analizi

Abstract

Bu çalışma, Brezilya, Rusya, Hindistan, Çin ve Güney Afrika (BRICS) ülkelerinde reel döviz kuru endeksi ile hisse senedi fiyatları arasındaki nedenselliği Mart 2003- Haziran 2018 dönemi boyunca araştırmaktadır. Değişkenler arasındaki ilişki geleneksel yaklaşım ve portföy dengesi yaklaşımı çerçevesinde simetrik ve asimetrik nedensellik testleri ile yapılmıştır. Buna göre, simetrik analiz için Hacker-Hatemi-J (2006) testi ve asimetrik analiz için ise Hatemi-J (2012) nedensellik testi kullanılmıştır. Analiz sonuçlarına göre BRICS ülkelerinde söz konusu değişkenker arasındaki nedensellik ilişkisi farklıdır. Elde edilen bulgular, geleneksel yaklaşım ya da portföy dengesi yaklaşımı lehine kesin bir kanıt sağlamamaktadır. Ayrıca söz konusu iki piyasada gürültücü işlemlerin olduğu ifade edilebilir.
Anahtar Kelimeler: BRICS, Hisse Senedi Fiyatları, Reel Efektif Döviz Kuru, Simetrik ve Asimetrik Nedensellik Analizi
JEL Sınıflandırması: C32, F31, G10, G15

Keywords

BRICS, Hisse Senedi Fiyatları, Reel Döviz Kuru Endeksi, Simetrik ve Asimetrik Nedensellik Analizi

References

• Akdoğu, S. K., & Birkan, A. O. (2016). Interaction between stock prices and exchange rate in emerging market economies. Research in World Economy, 7(1), 80-94.
• 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.
• Al-Daham, J. (2017). Relationship between exchange rates and stock prices–GCC perspectives. International Journal of Economics and Financial Issues, 7(2), 11-24.
• Ali, M., & Sun, G. (2017). Dynamic Relations between Stock Price and Exchange Rate: Evidence from South Asia. International Journal of Economics and Financial Issues, 7(3), 331-341.
• Ajayi, R. A., & Mougouė, M. (1996). On the dynamic relation between stock prices and exchange rates. Journal of Financial Research, 19(2), 193-207.
• Bahmani-Oskooee, M., & Sohrabıan, A. (1992). Stock Prices And The Effective Exchange Rate Of The Dollar. Applied Economics, 24(4), 459-464.
• Bahmani-Oskooee, M., & Saha, S. (2016). Do exchange rate changes have symmetric or asymmetric effects on stock prices? Global Finance Journal, 31, 57-72.
• Bahmani-Oskooee, M., & Saha, S. (2018). On the relation between exchange rates and stock prices: a non-linear ARDL approach and asymmetry analysis. Journal of Economics and Finance, 42(1), 112-137.
• Branson, W. (1983). Macroeconomic determinants of real exchange risk. In R. J. Herring (Ed.), Managing foreign exchange risk. Cambridge: Cambridge University Press.
• Chen, S. W. & Lin, C. H. (2014). Asymmetric causality between foreign exchange rates and stock prices: New evidence from the Pacific Rim economies. Journal of the Chinese Statistical Association, 52(2), 265-299.
• Chkili, W., & Nguyen, D. K. (2014). Exchange rate movements and stock market returns in a regime-switching environment: Evidence for BRICS countries. Research in International Business and Finance, 31, 46-56.
• Dahir, A. M., Mahat, F., Ab Razak, N. H., & Bany-Ariffin, A. N., (2018). Revisiting the dynamic relationship between exchange rates and stock prices in BRICS countries: A wavelet analysis. Borsa Istanbul Review, 18(2), 101-113.
• Delong, J., Shleıfer, A., Summers, L. & Waldmann, B. (1990). Positive Feedback Investment Strategies and Destabilizing Speculation. Journal of Finance, 45(2), 379-395.
• Dıckey, D. A. & Fuller, W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49(4), 1057-1072.
• Dornbusch, R., & Fischer, S. (1980). Exchange rates and current account. American Economic Review, 70, 960 - 971.
• Fang, W. S. (2002). The Effects Of Currency Depreciation On Stock Returns: Evidence From Five East Asian Economies, Applied Economics Letters, 9, 195–99.
• Frank, W. P., & Frank, E. C. (2010). International Business Challenge: Can The BRIC Countries Take World Economic Leadership Away From The Traditional Leadership in The Near Future. International Journal of Arts and Sciences, 3(13), 46-54.
• Frankel, J.A., (1983). Monetary and portfolio-balance models of exchange rate determination. In: Bhandari, J.S., Putnam, B.H. (Eds.), Economic Interdependence and Flexible Exchange Rates. MIT Press, Cambridge, (84–115).
• Granger, C. W. J., Huang, B. N., & Yang, C. W. (2000). A Bivariate Causality Between Stock Prices And Exchange Rates: Evidence From Recent Asian Flu. The Quarterly Review of Economics and Finance, 40, 337–354.
• Granger, C. W. J. & Yoon, G. (2002). Hidden Cointegration. San Diego: University of California, Department of Economics, Working Paper.
• Hacker, S. R. & Hatemi-J, A. (2006). Tests for Causality between Integrated Variables Using Asymptotic and Bootstrap Distributions: Theory and Application. Applied Economics, 38(13), 1489-1500.
• Hatemi–J, A., & Irandoust, M. (2002). On The Causality Between Exchange Rates And Stock Prices: A Note. Bulletin of Economic Research, 54(2), 197-203.
• Hatemi-J, A. (2012). Asymmetric Causality Tests with an Application. Empirical Economics, 43(1), 447-456.
• Kannaiah, D., & Murty, T. N. (2017). Exchange rate intervention and trade openness on the global economy with reference to Brazil, Russia, India, China and South Africa (BRICS) countries. Investment Management & Financial Innovations, 14(3), 339.
• Katechos, G. (2011). On the relationship between exchange rates and equity returns: A new approach. Journal of International Financial Markets, Institutions and Money, 21(4), 550-559.
• Koulakiotis, A., Kiohos, A., & Babalos, V. (2015). Exploring the interaction between stock price index and exchange rates: an asymmetric threshold approach. Applied Economics, 47(13), 1273-1285.
• Kumar, M. (2009). A Bivariate Linear And Nonlinear Causality Between Stock Prices And Exchange Rates. Economics Bulletin, 29(4), 2884-2895.
• Kutty, G. (2010). The Relationship Between Exchange Rates And Stock Prices: The Case Of Mexico. North American Journal of Finance & Banking Research, 4(4).
• Lin, C. H. (2012). The comovement between exchange rates and stock prices in the Asian emerging markets. International Review of Economics and Finance, 22(1), 161–172.
• Lim, S. Y., & Sek, S. K. (2014). Exploring the Inter-Relationship Between the Volatilities of Exchange Rate and Stock Return. Procedia Economics and Finance, 14, 367-376.
• Luqman, R., & Kouser, R. (2018). Asymmetrical Linkages Between Foreign Exchange and Stock Markets: Empirical Evidence Through Linear and Non-Linear ARDL. Journal of Risk and Financial Management, 11(3), 51
• Moore, T., & Wang, P. (2014). Dynamic Linkage Between Real Exchange Rates And Stock Prices: Evidence From Developed And Emerging Asian Markets. International Review of Economics and Finance, 29, 1–11.
• 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.
• Phıllıps, P. C. B. & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75(2), 335-346.
• Phylaktıs, K., & Ravazzolo, F. (2005). Stock Prices and Exchange Rate Dynamics, Journal of International Money and Finance, 24, 1031-1053.
• Qiang, Z., & Shu-e, Y. (2009). Noise trading, investor sentiment volatility, and stock returns. Systems Engineering - Theory & Practice, 29(3), 40-47.
• Tang, C. F. (2008). Wagner’s Law Versus Keynesian Hypothesis: New Evidence from Recursive Regression-Based Causality Approaches. ICFAI Journal of Public Finance, 6(4), 29-38.
• Toda, H. Y. & Yamamoto, T. (1995). Statistical Inference in Vector Autoregressions with Possibly Integrated Processes. Journal of Econometrics, 66(1-2), 225-250.
• Tsai, I. C. (2012). The Relationship Between Stock Price Index And Exchange Rate in Asian Markets: A Quantile Regression Approach. Journal of International Financial Markets, Institutions and Money, 22(3), 609–621.
• Ülkü, N., & Demirci, E. (2012). Joint dynamics of foreign exchange and stock markets in emerging Europe. Journal of International Financial Markets, Institutions and Money, 22(1), 55-86.
• Verma, R., & Verma, P. (2007). Noise trading and stock market volatility. Journal of Multinational Financial Management, 17(3), 231-243.
• Wongbangpo, P. & Sharma, S. C. (2002). Stock market and macroeconomic fundamental dynamic interactions: ASEAN-5 countries, Journal of Asian Economics, 13, 27–51.
• Wong, H. T. (2017). Real exchange rate returns and real stock price returns. International Review of Economics and Finance, (49), 340-352.
• Yang, S. P. (2017). Exchange rate dynamics and stock prices in small open economies: Evidence from Asia-Pacific countries. Pacific-Basin Finance Journal, 46, 337-354.
• Yılancı V., & Bozoklu Ş. (2015). Analysis Of Symmetric And Asymmetric Nonlinear Causal Relationship Between Stock Prices And Exchange Rates For Selected Emerging Market Economies. Doğuş Üniversitesi Dergisi, 16(2), 155-164.
• Zhao, H. (2010). Dynamic relationship between exchange rate and stock price: Evidence from China. Research in International Business and Finance, 24(2), 103–112.