Testing for a short-run and long-run relationship between the US dollar-Philippine peso exchange rate and the stock price indices of the different sectors in the Philippine stock market using error correction model

• Main Authors: De Gracia, Jedidiah, Gaspar, Harley P., Ilagan, Jacob H.
• Format: text
• Language: English
• Published: Animo Repository 2005
• Subjects: Foreign exchange rates > Philippines; Stock price indexes > Philippines; Stocks > Philippines; Stock exchanges > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18325
• Institution: De La Salle University

This study aims to test the long-run and short-run relation between the US-dollar-Philippine peso exchange rate and the different sectors in the Philippine stock market. An error correlation model (ECM) was used because the ECM can capture the partial adjustments one variable makes to a shock experienced by another variable in order for the variable to return to its long-run equilibrium. The ECM can also capture short-run dynamics between series and is suitable in examining Granger-causality relations. Results show bi-directional short run and long run relation between the US dollar-Philippine peso exchange rate and the stock price indices of the different sectors in the Philippine stock market. The effect of causality varies depending on the length of time being considered--short run or long run, what the lead variable is, and the nature of the industry being considered.