Dynamics between stock price and exchange rates in Australia, Canada and New Zealand.

• Main Authors: Lim, Chee Li., Ng, Pei Wen.
• Other Authors: Choong Chewn Seng, Edmund
• Format: Final Year Project
• Language: English
• Published: 2009
• Subjects: DRNTU::Business::Finance::Equity
• Online Access: http://hdl.handle.net/10356/15272
• Institution: Nanyang Technological University

Our study examines the long and short run relationships between stock market performances and exchange rates of three commodity-export dependent countries namely Australia, Canada and New Zealand, after their adoption of a floating exchange rate. This provides an additional outlook and further insights into the contending issue of the presence of any causal relationship between foreign exchange markets and stock markets. We investigate the existence and direction of the causal relationship between stock prices and exchange rates, using daily data that spans across three normal periods and two crisis periods, namely the 1987 and 1997 financial crisis. Employing Augmented Dickey-Fuller test, cointegrating VAR test and Granger Causality test, our study ascertained a positive causality between the two variables. A long-run relationship was found to be absent for both Australia and Canada but apparent for New Zealand. The direction of causality returned a spectrum of varying results, but Australia and New Zealand generally purported the portfolio balance theory.