Analyzing the causal effects of the major ASEAN-4 countries exchange rates against the Philippine peso on the volatility of the Philippine stock market returns

• Main Authors: Chua, Richmond Ryan S., Shi, Yung Ching S., Tang, Willy W., Wu, Rico J.
• Format: text
• Language: English
• Published: Animo Repository 2023
• Subjects: Stock exchanges—Southeast Asia; Stock exchanges—Philippines; Stocks—Philippines—Rate of return; Finance
• Online Access: https://animorepository.dlsu.edu.ph/etdb_finman/76; https://animorepository.dlsu.edu.ph/context/etdb_finman/article/1070/viewcontent/Analyzing_the_Causal_Effects_of_the_Major_ASEAN_4_Countries_Excha.pdf
• Institution: De La Salle University

The objective of the paper is to analyze the causal effect between the exchange rate of ASEAN-4 countries relative to the Philippine Peso and the daily returns of the Philippine stock market, with a focus on the structural break from Pre-COVID and COVID. The study investigates the impact of global trade barriers on these investment elements by collecting data on daily stock market returns and exchange rates from 2012 to 2022. The research incorporates various tests, including Descriptive Statistics, Chow Test, the ADF test, and GARCH modelings, such as Autocorrelation and Partial Autocorrelation Plots, GARCH Model, ARCH, and Weighted Ljung Box Test. During the Pre-COVID period, the exchange rate of SGD and THB to PHP had a negative coefficient while the exchange rate of MYR and IDR to PHP had a positive coefficient. Then, during the COVID period the exchange rate of MYR and THB is positive indicating that it has a positive relationship with the stock market return of the PSEi, while MYR and IDR show a negative coefficient, indicating a detrimental effect on the PSEi. To add, in the variance equation, all exchange rates have significant coefficients during the COVID period, implying a more pronounced impact on stock market volatility compared to the Pre-Covid period. The researchers conclude that the coefficients of exchange rates on the Philippine stock market differ before and after the pandemic, highlighting the need to treat each period separately when modeling regression relationships involving them.