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Linear and Non-Linear Causality Tests of Stock Price and Real Exchange Rate Interactions in Turkey

Yıl 2018, Cilt: 2 Sayı: 1, 99 - 118, 31.01.2018
https://doi.org/10.25295/fsecon.370719

Öz

The purpose of this study is to determine whether there is a causality relationship between stock price and real exchange rates in Turkey. Within this context, the study employs monthly data for real exchange rates based on consumer price index and BIST 100 index as representing stock prices that cover the periods from January 2005 to August 2017. On the other side, Granger causality test, Toda-Yamamoto causality analysis and Diks and Panchenko nonlinear causality test used for this purpose. As a result, Linear Granger causality, Toda-Yamamoto and Nonlinear Granger causality tests reveal that there is a casual relationship between real exchange rate and stock price in Turkish economy for the period of 2005:01 - 2017:08 and the direction of the causality is from stock price to exchange rate. This evidence can be interpreted as the changes in stock prices may strongly have influences on the success of foreign exchange rate policies.

Kaynakça

  • Abdalla, I. S., & Murinde, V. (1997). Exchange rate and stock price interactions in emerging financial markets: evidence on India, Korea, Pakistan and the Philippines. Applied financial economics, 7(1), 25-35.
  • Aggarwal, R. (1981). Exchange Rates and Stock Prices: A Study of the US. Capital Markets under Floating Exchange Rates. Akron Business and Economic Review, 12, 7-12.
  • Akdogu, S. K., & Birkan, A. O. (2016). Interaction between Stock Prices and Exchange Rate in Emerging Market Economies. Research in World Economy, 7(1), 80.
  • Ajayi, R. A., Friedman, J., & Mehdian, S. M. (1998). On the relationship between stock returns and exchange rates: tests of Granger causality. Global finance journal, 9(2), 241-251.
  • Akel, G. (2014). Relationship Between Exchange Rates and Stock Prices in Transition Economies Evidence from Linear and Nonlinear Causality Tests. In Proceedings of Economics and Finance Conferences (No. 0401783). International Institute of Social and Economic Sciences.
  • 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.
  • Baek, E. G., & Brock, W. A. (1992). A nonparametric test for independence of a multivariate time series. Statistica Sinica, 137-156.
  • Bahmani-Oskooee, M., & Sohrabian, A. (1992). Stock prices and the effective exchange rate of the dollar. Applied economics, 24(4), 459-464.
  • Blanchard, O., Watson, M.W., 1982. Bubbles, rational expectations, and financial markets. In Wachtel, P. (Ed.) Crises in the economic and financial structure. Lexington Books, Lexington, MA.
  • Branson, W.H., Halttunen, H. and Masson, P. (1977). Exchange Rate in the Short-Run: The Dollar Deutsche Mark Rate. European Economic Review 10(3), pp. 303-324.
  • Branson, W. H. (1983). Branson, W.H.,(1983), Macroeconomic Determinants of Real Exchange Rate Risk. In R.J.Herring (ed.) Managing Foreign Exchange Risk. Cambridge: Cambridge University Press. Cakan, E., & Ejara, D. D. (2013). On the Relationship between Exchange Rates and Stock Prices: Evidence from Emerging Markets. International Research Journal of Finance and Economics, 111, 115-124.
  • Ceylan, S., & Sahin, B. Y. (2015). Relationship between Stock Prices and Exchange Rate. The Journal of Academic Social Science Studies, 37, 399-408.
  • Chen, S. W., & Chen, T. C. (2012). Untangling the non-linear causal nexus between exchange rates and stock prices: new evidence from the OECD countries. Journal of Economic Studies, 39(2), 231-259.
  • Chiang, T. C., Yang, S.Y., & Wang, T. S. (2000), Stock return and exchange rate risk: evidence from Asian stock markets based on a bivariate GARCH model, International Journal of Business, 2, 97-117.
  • 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.
  • Cuestas, J. C., & Tang, B. (2015). Asymmetric exchange rate exposure of stock returns: Empirical evidence from Chinese Industries. The Sheffield Economic Research Paper Series (SERPS), No. 201502(021).
  • Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society, 1057-1072.
  • Diks, C., & Panchenko, V. (2006). A new statistic and practical guidelines for nonparametric Granger causality testing. Journal of Economic Dynamics and Control, 30(9), 1647-1669.
  • Dogru, B., & Recepoglu, M. (2013). Türkiye’de Hissse Senedi Fiyatları ve Döviz Kuru Arasında Doğrusal ve Doğrusal Olmayan Eş Bütünleşme İlişkisi (in Turkish). Dumlupınar University Journal of Social Sciences, EYD 2013 Special Issue.
  • Dornbusch, R., & Fischer, S. (1980). “Exchange rates and current account.” American Economic Review, 70, 960−971.
  • Effiong, E. L. (2016). Nonlinear dependence between stock prices and exchange rate in Nigeria. Munich Personal RePEc Archive (MPRA), No. 74336.
  • Fang, W. (2002). The effects of currency depreciation on stock returns: Evidence from five East Asian economies. Applied Economics Letters, 9(3), 195-199.
  • Flood, R.P., & Marion, N.P., 1998. Perspectives on the recent currency crisis literature, Jan. 1998, NBER Working Paper No. 6380.
  • Frankel, J. A. (1983). Monetary and Portfolio-Balance Models of Exchange Rate Determination in Economic Interdependence and Flexible Exchange Rates,J.S.Bhandari and B.H.Putnam eds.,Cambridge:MIT Press.
  • Frankel, J.A., & Froot, K.A., (1986). The dollar as a speculative bubble: a tale of fundamentalists and chartists. National Bureau of Economic Research Working Paper No. 1854, March.
  • Froot, K.A., & Obstfeld, M. (1991). Intrinsic bubbles: the case of stock prices. American Economic Review, 81, 1189–1214.
  • Gavin, M. (1989). The stock market and exchange rate dynamics. Journal of International Money and Finance, 8, 181−200.
  • Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 424-438.
  • Granger, C. W., Huang, B., & Yang, C. (2000). A Bivariate Causality between Stock Prices and Exchange Rates: Evidence from Recent Asian Flu. Quarterly Review of Economics and Finance, 40, 337-354.
  • 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., & Roca, E. (2005). Exchange rates and stock prices interaction during good and bad times: evidence from the ASEAN4 countries. Applied Financial Economics, 15(8), 539-546.
  • Hiemstra, C., & Jones, J. D. (1994). Testing for linear and nonlinear Granger causality in the stock price‐volume relation. The Journal of Finance, 49(5), 1639-1664.
  • Hiemstra, C., & Kramer, C. (1997). Nonlinearity and endogeneity in macro-asset pricing. Studies in Nonlinear Dynamics & Econometrics, 2(3).
  • Ibrahim, M. H. (2000). Cointegration and Granger causality tests of stock price and exchange rate interactions in Malaysia. ASEAN Economic Bulletin, 36-47.
  • Ismail, M. T., & Bin Isa, Z. (2009). Modeling the interactions of stock price and exchange rate in Malaysia. The Singapore Economic Review, 54(04), 605-619.
  • Kal, S. H., Arslaner, F., & Arslaner, N. (2015). The dynamic relationship between stock, bond and foreign exchange markets. Economic Systems, 39(4), 592-607.
  • Kim, K. (2003). Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model. Review of Financial Economics, 12, 301-313.
  • Krugman, P., (1991). Target zones and exchange rate dynamics. Quarterly Journal of Economics, 106, 669–682.
  • Kumar, M. (2009). A bivariate linear and nonlinear causality between stock prices and exchange rates. Economics Bulletin, 29(4), 2884-2895.
  • Lee, J., & Strazicich, M. C. (2003). Minimum Lagrange multiplier unit root test with two structural breaks. The Review of Economics and Statistics, 85(4), 1082-1089. Liu, L., & Wan, J. (2012). The relationships between Shanghai stock market and CNY/USD exchange rate: New evidence based on cross-correlation analysis, structural cointegration and nonlinear causality test. Physica A: Statistical Mechanics and its Applications, 391(23), 6051-6059.
  • Ma, Y., & Kanas, A. (2000). Testing for a nonlinear relationship among fundamentals and exchange rates in the ERM. Journal of International Money and Finance, 19(1), 135-152.
  • Nath, G. C., & Samanta, G. P., (2003), “Dynamic Relation between Exchnage Rate and Stock Prices – A Case for India”, 39th Annual Conference paper of Indian Econometric Society also published in NSE News.
  • Pekkaya, M., & Bayramoglu, M. F. (2008). Hisse Senedi Fiyatlari ve Döviz Kuru Arasindaki Nedensellik Iliskisi: YTL/USD, IMKB 100 ve S&P 500 Üzerine Bir Uygulama. Muhasebe ve Finansman Dergisi, (38).
  • Piccillo, G. (2009). Foreign exchange and stock market: Two related markets? Discussion Paper Series / Center for Economic Studies., 1–44.
  • Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346.
  • Phylaktis, K., & Ravazzolo., F. (2005). Stock Prices and Exchange Rate Dynamics. Journal of International Money and Finance, Vol. 24, No.7, pp. 1031-1053.
  • Rahimi, A., Lavoie, M., & Chu, B. (2016). Linear and nonlinear Granger-causality between short-term and long-term interest rates during business cycles. International Review of Applied Economics, 30(6), 714-728.
  • Rahman, M. L., & Uddin, J. (2009). Dynamic relationship between stock prices and exchange rates: Evidence from three South Asian countries. International Business Research, 2(2), 167.
  • Ramírez, C. S. L., Romero-Meza, R., & Venegas-Martínez, F. (2017). Non-Linear Multivariate Dependence between the Mexican Stock Market Index and the Exchange Rate: Efficiency Hypothesis and Political Cycle in Mexico (1994-2012). Revista Mexicana de Economía y Finanzas. Nueva Época/Mexican Journal of Economics and Finance, 12(1).
  • Smyth, R., & Nandha, M. (2003). Bivariate causality between exchange rates and stock prices in South Asia. Applied Economics Letters, 10(11), 699-704.
  • Soenen, L. A., & Hennigar, E. S. (1988). An analysis of exchange-rates and stock-prices-the united-states experience between 1980 and 1986. Akron Business and Economic Review, 19(4), 7-16.
  • Stavarek, Daniel, (2005), “Stock Prices and Exchange Rates In The EU And The United States: Evidence On Their Mutual Interactions”, Czech Journal Of Economics And Finance, Vol. 55, No.3-4, pp. 141-161.
  • Tabak, B. M. (2006). The dynamic relationship between stock prices and exchange rates: Evidence for Brazil. International Journal of Theoretical and Applied Finance, 9(08), 1377-1396.
  • Tai, C. S. (2007). Market integration and contagion: Evidence from Asian emerging stock and foreign exchange markets. Emerging markets review, 8(4), 264-283.
  • Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of econometrics, 66(1), 225-250.
  • Tsai, I. (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.
  • Yau, H. Y., & Nieh, C. C. (2009). Testing for cointegration with threshold effect between stock prices and exchange rates in Japan and Taiwan. Japan and the World Economy, 21(3), 292-300.
  • Wu, Y. (2000). Stock prices and exchange rates in a VEC model-the case of Singapore in the 1990s. Journal of Economics and Finance, 24(3), 260-274.
Yıl 2018, Cilt: 2 Sayı: 1, 99 - 118, 31.01.2018
https://doi.org/10.25295/fsecon.370719

Öz

Kaynakça

  • Abdalla, I. S., & Murinde, V. (1997). Exchange rate and stock price interactions in emerging financial markets: evidence on India, Korea, Pakistan and the Philippines. Applied financial economics, 7(1), 25-35.
  • Aggarwal, R. (1981). Exchange Rates and Stock Prices: A Study of the US. Capital Markets under Floating Exchange Rates. Akron Business and Economic Review, 12, 7-12.
  • Akdogu, S. K., & Birkan, A. O. (2016). Interaction between Stock Prices and Exchange Rate in Emerging Market Economies. Research in World Economy, 7(1), 80.
  • Ajayi, R. A., Friedman, J., & Mehdian, S. M. (1998). On the relationship between stock returns and exchange rates: tests of Granger causality. Global finance journal, 9(2), 241-251.
  • Akel, G. (2014). Relationship Between Exchange Rates and Stock Prices in Transition Economies Evidence from Linear and Nonlinear Causality Tests. In Proceedings of Economics and Finance Conferences (No. 0401783). International Institute of Social and Economic Sciences.
  • 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.
  • Baek, E. G., & Brock, W. A. (1992). A nonparametric test for independence of a multivariate time series. Statistica Sinica, 137-156.
  • Bahmani-Oskooee, M., & Sohrabian, A. (1992). Stock prices and the effective exchange rate of the dollar. Applied economics, 24(4), 459-464.
  • Blanchard, O., Watson, M.W., 1982. Bubbles, rational expectations, and financial markets. In Wachtel, P. (Ed.) Crises in the economic and financial structure. Lexington Books, Lexington, MA.
  • Branson, W.H., Halttunen, H. and Masson, P. (1977). Exchange Rate in the Short-Run: The Dollar Deutsche Mark Rate. European Economic Review 10(3), pp. 303-324.
  • Branson, W. H. (1983). Branson, W.H.,(1983), Macroeconomic Determinants of Real Exchange Rate Risk. In R.J.Herring (ed.) Managing Foreign Exchange Risk. Cambridge: Cambridge University Press. Cakan, E., & Ejara, D. D. (2013). On the Relationship between Exchange Rates and Stock Prices: Evidence from Emerging Markets. International Research Journal of Finance and Economics, 111, 115-124.
  • Ceylan, S., & Sahin, B. Y. (2015). Relationship between Stock Prices and Exchange Rate. The Journal of Academic Social Science Studies, 37, 399-408.
  • Chen, S. W., & Chen, T. C. (2012). Untangling the non-linear causal nexus between exchange rates and stock prices: new evidence from the OECD countries. Journal of Economic Studies, 39(2), 231-259.
  • Chiang, T. C., Yang, S.Y., & Wang, T. S. (2000), Stock return and exchange rate risk: evidence from Asian stock markets based on a bivariate GARCH model, International Journal of Business, 2, 97-117.
  • 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.
  • Cuestas, J. C., & Tang, B. (2015). Asymmetric exchange rate exposure of stock returns: Empirical evidence from Chinese Industries. The Sheffield Economic Research Paper Series (SERPS), No. 201502(021).
  • Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society, 1057-1072.
  • Diks, C., & Panchenko, V. (2006). A new statistic and practical guidelines for nonparametric Granger causality testing. Journal of Economic Dynamics and Control, 30(9), 1647-1669.
  • Dogru, B., & Recepoglu, M. (2013). Türkiye’de Hissse Senedi Fiyatları ve Döviz Kuru Arasında Doğrusal ve Doğrusal Olmayan Eş Bütünleşme İlişkisi (in Turkish). Dumlupınar University Journal of Social Sciences, EYD 2013 Special Issue.
  • Dornbusch, R., & Fischer, S. (1980). “Exchange rates and current account.” American Economic Review, 70, 960−971.
  • Effiong, E. L. (2016). Nonlinear dependence between stock prices and exchange rate in Nigeria. Munich Personal RePEc Archive (MPRA), No. 74336.
  • Fang, W. (2002). The effects of currency depreciation on stock returns: Evidence from five East Asian economies. Applied Economics Letters, 9(3), 195-199.
  • Flood, R.P., & Marion, N.P., 1998. Perspectives on the recent currency crisis literature, Jan. 1998, NBER Working Paper No. 6380.
  • Frankel, J. A. (1983). Monetary and Portfolio-Balance Models of Exchange Rate Determination in Economic Interdependence and Flexible Exchange Rates,J.S.Bhandari and B.H.Putnam eds.,Cambridge:MIT Press.
  • Frankel, J.A., & Froot, K.A., (1986). The dollar as a speculative bubble: a tale of fundamentalists and chartists. National Bureau of Economic Research Working Paper No. 1854, March.
  • Froot, K.A., & Obstfeld, M. (1991). Intrinsic bubbles: the case of stock prices. American Economic Review, 81, 1189–1214.
  • Gavin, M. (1989). The stock market and exchange rate dynamics. Journal of International Money and Finance, 8, 181−200.
  • Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 424-438.
  • Granger, C. W., Huang, B., & Yang, C. (2000). A Bivariate Causality between Stock Prices and Exchange Rates: Evidence from Recent Asian Flu. Quarterly Review of Economics and Finance, 40, 337-354.
  • 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., & Roca, E. (2005). Exchange rates and stock prices interaction during good and bad times: evidence from the ASEAN4 countries. Applied Financial Economics, 15(8), 539-546.
  • Hiemstra, C., & Jones, J. D. (1994). Testing for linear and nonlinear Granger causality in the stock price‐volume relation. The Journal of Finance, 49(5), 1639-1664.
  • Hiemstra, C., & Kramer, C. (1997). Nonlinearity and endogeneity in macro-asset pricing. Studies in Nonlinear Dynamics & Econometrics, 2(3).
  • Ibrahim, M. H. (2000). Cointegration and Granger causality tests of stock price and exchange rate interactions in Malaysia. ASEAN Economic Bulletin, 36-47.
  • Ismail, M. T., & Bin Isa, Z. (2009). Modeling the interactions of stock price and exchange rate in Malaysia. The Singapore Economic Review, 54(04), 605-619.
  • Kal, S. H., Arslaner, F., & Arslaner, N. (2015). The dynamic relationship between stock, bond and foreign exchange markets. Economic Systems, 39(4), 592-607.
  • Kim, K. (2003). Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model. Review of Financial Economics, 12, 301-313.
  • Krugman, P., (1991). Target zones and exchange rate dynamics. Quarterly Journal of Economics, 106, 669–682.
  • Kumar, M. (2009). A bivariate linear and nonlinear causality between stock prices and exchange rates. Economics Bulletin, 29(4), 2884-2895.
  • Lee, J., & Strazicich, M. C. (2003). Minimum Lagrange multiplier unit root test with two structural breaks. The Review of Economics and Statistics, 85(4), 1082-1089. Liu, L., & Wan, J. (2012). The relationships between Shanghai stock market and CNY/USD exchange rate: New evidence based on cross-correlation analysis, structural cointegration and nonlinear causality test. Physica A: Statistical Mechanics and its Applications, 391(23), 6051-6059.
  • Ma, Y., & Kanas, A. (2000). Testing for a nonlinear relationship among fundamentals and exchange rates in the ERM. Journal of International Money and Finance, 19(1), 135-152.
  • Nath, G. C., & Samanta, G. P., (2003), “Dynamic Relation between Exchnage Rate and Stock Prices – A Case for India”, 39th Annual Conference paper of Indian Econometric Society also published in NSE News.
  • Pekkaya, M., & Bayramoglu, M. F. (2008). Hisse Senedi Fiyatlari ve Döviz Kuru Arasindaki Nedensellik Iliskisi: YTL/USD, IMKB 100 ve S&P 500 Üzerine Bir Uygulama. Muhasebe ve Finansman Dergisi, (38).
  • Piccillo, G. (2009). Foreign exchange and stock market: Two related markets? Discussion Paper Series / Center for Economic Studies., 1–44.
  • Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346.
  • Phylaktis, K., & Ravazzolo., F. (2005). Stock Prices and Exchange Rate Dynamics. Journal of International Money and Finance, Vol. 24, No.7, pp. 1031-1053.
  • Rahimi, A., Lavoie, M., & Chu, B. (2016). Linear and nonlinear Granger-causality between short-term and long-term interest rates during business cycles. International Review of Applied Economics, 30(6), 714-728.
  • Rahman, M. L., & Uddin, J. (2009). Dynamic relationship between stock prices and exchange rates: Evidence from three South Asian countries. International Business Research, 2(2), 167.
  • Ramírez, C. S. L., Romero-Meza, R., & Venegas-Martínez, F. (2017). Non-Linear Multivariate Dependence between the Mexican Stock Market Index and the Exchange Rate: Efficiency Hypothesis and Political Cycle in Mexico (1994-2012). Revista Mexicana de Economía y Finanzas. Nueva Época/Mexican Journal of Economics and Finance, 12(1).
  • Smyth, R., & Nandha, M. (2003). Bivariate causality between exchange rates and stock prices in South Asia. Applied Economics Letters, 10(11), 699-704.
  • Soenen, L. A., & Hennigar, E. S. (1988). An analysis of exchange-rates and stock-prices-the united-states experience between 1980 and 1986. Akron Business and Economic Review, 19(4), 7-16.
  • Stavarek, Daniel, (2005), “Stock Prices and Exchange Rates In The EU And The United States: Evidence On Their Mutual Interactions”, Czech Journal Of Economics And Finance, Vol. 55, No.3-4, pp. 141-161.
  • Tabak, B. M. (2006). The dynamic relationship between stock prices and exchange rates: Evidence for Brazil. International Journal of Theoretical and Applied Finance, 9(08), 1377-1396.
  • Tai, C. S. (2007). Market integration and contagion: Evidence from Asian emerging stock and foreign exchange markets. Emerging markets review, 8(4), 264-283.
  • Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of econometrics, 66(1), 225-250.
  • Tsai, I. (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.
  • Yau, H. Y., & Nieh, C. C. (2009). Testing for cointegration with threshold effect between stock prices and exchange rates in Japan and Taiwan. Japan and the World Economy, 21(3), 292-300.
  • Wu, Y. (2000). Stock prices and exchange rates in a VEC model-the case of Singapore in the 1990s. Journal of Economics and Finance, 24(3), 260-274.
Toplam 58 adet kaynakça vardır.

Ayrıntılar

Birincil Dil İngilizce
Konular İşletme
Bölüm Makaleler
Yazarlar

Gözde Yıldırım Bu kişi benim

Zafer Adalı

Yayımlanma Tarihi 31 Ocak 2018
Yayımlandığı Sayı Yıl 2018 Cilt: 2 Sayı: 1

Kaynak Göster

APA Yıldırım, G., & Adalı, Z. (2018). Linear and Non-Linear Causality Tests of Stock Price and Real Exchange Rate Interactions in Turkey. Fiscaoeconomia, 2(1), 99-118. https://doi.org/10.25295/fsecon.370719

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