پویایی های نرخ ارز و قیمت سهام

We study the long-run and short-run dynamics between stock prices and exchange rates and the channels through which exogenous shocks impact on these markets by using cointegration methodology and multivariate Granger causality tests. We apply the analysis to a group of Pacific Basin countries over the period 1980–1998. The evidence suggests that stock and foreign exchange markets are positively related and that the US stock market acts as a conduit for these links. Furthermore, these links are not found to be determined by foreign exchange restrictions. Finally, through the application of recursive estimation the evidence shows that the financial crisis had a temporary effect on the long-run comovement of these markets.

The recent emergence of new capital markets, the relaxation of foreign capital controls and the adoption of more flexible exchange rate regimes have increased the interest of academics and practitioners in studying the interactions between the stock and foreign exchange markets. The gradual abolition of foreign exchange controls in emerging economies has opened the possibility of international investment and portfolio diversification. At the same time, the adoption of more flexible exchange rate regimes by these countries in the late 1980s and early 1990s has increased the volatility of foreign exchange markets and the risk associated with such investments. The choice of currency denomination has added an important dimension to the overall portfolio decision. Classical economic theory suggests a relationship between the stock market performance and the exchange rate behaviour. For example, “flow oriented” models of exchange rate determination (see e.g. Dornbusch and Fisher, 1980), affirm that currency movements affect international competitiveness and the balance of trade position, and consequently the real output of the country, which in turn affects current and future cash flows of companies and their stock prices. Movements in the stock market may also affect exchange rates. Equities, being part of wealth, may affect the behaviour of exchange rates through the demand for money according to the monetarist models of exchange rate determination (see Gavin, 1989). Similar links can be traced through the portfolio-balance models as well (see Branson, 1983 and Frankel, 1983). Previous studies, which have examined the relationship between stock and foreign exchange markets mainly for US (see e.g. Aggarwal, 1981, Soenen and Hennigar, 1988, Ma and Kao, 1990, Roll, 1992 and Chow et al., 1997), found different results concerning the links between the two markets. For example, Aggarwal (1981) finds that revaluation of the US dollar is positively related to stock market returns. In contrast, when Soenen and Hennigar (1988) considered a different period, 1980–1986, they found a significantly negative relationship. Roll (1992), who used daily data over the period 1988–1991, found also a positive relationship between the two markets. On the other hand, Chow et al. (1997) using monthly data for the period 1977–1989 found no relationship for monthly excess stock returns and real exchange rate returns. When repeating the exercise, however, with longer than six months horizons they found a positive relationship between a strong dollar and stock returns. At the micro level other works have focused on evaluating the exposure of domestic firms to foreign currency risk. Apart from the economic exposure, which arises from variations in firm's discounted cash flows when exchange rates fluctuate, firms also face transaction exposure due to gains or losses arising from settlement of investment transactions stated in foreign currency terms. Empirical work using an unconditional pricing multi-factor asset pricing model generally reports that the exchange risk is not priced either in the US or in the Japanese markets (see e.g. Jorion, 1991, Hamao, 1988 and Brown and Otsuki, 1990). More recent studies, however, using a conditional international asset pricing model with exchange risk find that the conditional model outperforms the unconditional model used by prior work, and report that the exchange risk is priced for the four largest countries, US, UK, Japan and Germany (see e.g. Dumas and Solnik, 1995 and De Santis and Gerard, 1998). Our study concentrates on the macro level issues and contributes to the literature in the following ways. First, the paper clarifies the theoretical issues of the relationship between stock and foreign exchange markets. It discusses the channels through which exogenous shocks impact on these markets and link them together. Secondly, it considers simultaneously both the short-run and the long-run dynamics of the financial markets. Earlier empirical work focused their analysis on the linkage between the returns in the two markets and did not consider the relationship between the levels of the series. One of the reasons for concentrating on returns is the fact that financial time series do not satisfy the basic assumption of stationarity required to avoid spurious inferences based on regression analysis. By differencing the variables, however, some information regarding a possible linear combination between the levels of the variables may be lost. It should be noted that economic theory does not preclude a relationship of exchange rates and stock prices in terms of levels. We use cointegration technique, which overcomes the problem of nonstationarity and allows us to investigate the relationship between exchange rates and stock prices in both levels and differences. Thirdly, it is shown that the lack of causal relationship between the stock and foreign exchange markets in a country might be due to the omission of an important variable from the system, which acts as a conduit through which the real exchange rate affects the stock market, invalidating the results of some of the previous studies. Caporale and Pittis (1997) have shown that inferences about the long-run relationship of variables and the causality structure are invalid in an incomplete system. The important variable omitted from the system is the US stock market, which can be thought of as representing the influence of world markets. As foreign capital restrictions are lifted in the Pacific Basin Stock markets there will be an increase in the degree of correlation between the local market and other financial markets around the world, as well as an increase in the link between the foreign exchange and stock markets.1 Finally, previous studies have concentrated almost exclusively on US. Our study examines the relationship between stock and foreign exchange markets for a group of Pacific Basin countries providing another insight into the issue. The paper tries to answer the following questions. What is the long-run relationship between the stock markets and foreign exchange markets? Has the relationship changed in recent years following the opening of stock markets to foreign investors? What has been the effect of the financial crisis of July 1997 on this relationship? What is the direction of causality between these markets and what are the implications for the transmission mechanism of shocks? Can domestic stock markets be isolated from world markets? Answers to these questions have policy implications for the implementation of exchange rate and foreign exchange control policies. Understanding the dynamic links between stock and foreign exchange markets should also assist multinational corporations in managing their foreign exchange exposure. The paper is structured as follows. Section 2 explains methodological issues. It discusses the theoretical links between the stock and foreign exchange markets within the cointegration methodology. It examines the application of multivariate Granger causality tests suggested by Dolado and Lutkepohl (1996). Testing for the direction of causality is associated with some interesting hypotheses regarding the type of channel that links the stock and foreign exchange markets. It finally explains the recursive-based method to test for constancy of the long-run relationship developed by Hansen and Johansen (1998). Section 3 discusses the data and presents the empirical results. Section 4 summarises the main findings and the policy implications.

In this paper, we have examined the long-run and short-run dynamics between stock prices and exchange rates in a group of Pacific Basin countries. Our main concerns were to examine whether these links were affected by the existence of foreign exchange controls, and by the Asian financial crisis of mid-1997. The following conclusions have been derived from our analysis. First, our analysis has shown that the US stock market is an important “causing” variable, which acts as a conduit through which the foreign exchange and the local stock markets are linked. This casts doubts on the inferences of previous studies, which did not include the influence of world markets. Secondly, foreign exchange restrictions have not been found to be an important determinant of the link between the domestic stock and foreign exchange markets on the one hand, and between the domestic capital and world capital markets on the other hand. Free capital flow is not sufficient for international investment, access to market information could also be important. Links between markets can be fostered through other channels. This latter result supports the evidence presented in other studies (see e.g. Phylaktis, 1997 and Phylaktis, 1999), which have found for the shorter end of financial instruments that there is substantial capital market integration between the Pacific-Basin Region and US during the 1990s even for countries with extensive foreign exchange controls. The open character of these economies in terms of exports and imports and the substantial trade with US provides a possible explanation for these results. A country's external trade to another country measures the degree of economic integration between them and the degree of how much the two economies' cash flows are intertwined. Thus, financial integration can be closely related to economic integration. In addition, the analysis has provided evidence that Country Funds offer a way to foreign investors for accessing local markets and increasing their integration with global markets even in the presence of foreign exchange restrictions. Our results are at variance with Bekaert et al. (2002), who have also made an attempt to date the integration of emerging markets with world markets by looking for a common break in the process generating the financial time series, which are likely to be related to the integration process. They included three of the countries in our sample, Malaysia, Philippines and Thailand. For Malaysia, the breaks found are much later than either the official liberalisation date or the introduction of the FCF.23 For Philippines, the dividend yield series presents the earliest break and is very close to the FCF date, while for Thailand US equity flows to market capitalisation has the earliest break and is close to the official liberalisation date. A possible explanation for the different results between our study and Bekaert et al. (2002) might be the fact that our analysis is done within a better defined framework. Thirdly, the results of the multivariate causality tests indicate that on the whole, the US stock market drives the system confirming the influence of the US on these economies. They also show the channel through which this influence brings together the foreign exchange and local stock markets. The channel has been found not to be connected to the degree of stock market openness. Finally, the parameter constancy tests indicate that the increase in the parameters during the height of the Asian crisis was short lived and confirm that Thailand was badly affected. These results are in agreement with other studies which have studied the October 1987 crash and found that intermarket relationships intensified for a brief period around the crash, but then quickly resumed their normal pre-crash period relationship. In conclusion, our analysis has indicated a close association between stock and foreign exchange markets, which has implications for exchange rate policies. The positive association between the stock market and the real exchange rate implies that the degree of exchange rate flexibility has a role to play in that relationship. Our analysis also casts doubts on the use of foreign exchange restrictions for the purpose of isolating the domestic capital markets from world influences. The establishment of country funds by providing investors a means for entering otherwise restricted emerging markets fosters their integration with world markets. At the same time, the general increase in international trade and the resultant increase in economic integration might have also strengthened financial integration even in the presence of restrictions.