Stock prices and the effective exchange rate of the dollar 授課教授:楊奕農 學生: 白亦辰

Few of the studies have indicated the possibility of any significant relation that may exist between exchange rates and stock prices. Therefore, the purpose of this paper is to show that not only a change in exchange rate may cause a change in stock prices, but a change in stock prices could also cause a change in exchange rates. INTRODUCTION

THEORETICAL DISCUSSION Aggarwal(1981) has argued that a change in exchange rate could change the stock prices of a multinational firm directly and those of the domestic firms indirectly. The simplest way of inferring the impact of a change in stock prices on exchange rates is to rely on the portfolio approach to exchange rate determination. The role of the exchange rate is to balance the asset demand and supplies. THEORETICAL DISCUSSION

1. Granger causality test 2. Cointegration analysis METHODOLOGY

EMPIRICAL RESULTS Data: total of 186 observations from the US economy. The period : 1973.07-1988.12 SP variable: the values of S&P 500 /EX variable: the effective exchange rate of the dollar. First, it needs to check for the stationarity of the time series involved, i.e. EX and SP series, so use the Augmented Dickey-Fuller (ADF) test.

EMPIRICAL RESULTS

EMPIRICAL RESULTS

CONCLUSION Previous studies : exchange rates → stock prices In this paper: stock prices →exchange rates Granger concept of causality combined with Akaike's FPE and the F test show that there is a dual causal relationship between the stock prices and effective exchange rate, at least in the short-run. Cointegration analysis is unable to establish any long-run relationship between the two variables. CONCLUSION