Stock markets and effective exchange rates in European countries: threshold cointegration findings

Document Type

Article

Source of Publication

Eurasian Economic Review

Publication Date

8-1-2016

Abstract

© 2015, Eurasia Business and Economics Society. The nexus between stock markets and exchange rates is examined in the case of eight European countries. The sample consists of four economies with national currencies and four that have adopted the euro. Thus, if differences between the two groups in the relationship governing the two markets exist, they will be unveiled. To this effect, a threshold cointegration methodology is adopted that allows for more reliable inferences to be drawn for both the short and long run nexus between the two markets. Monthly data is used covering the period 01/2000–12/2014. The findings reported herein offer support in favor of the portfolio approach thesis over the recent economic crisis period, but this finding is not the case for the entire sample. Bidirectional causality is found for Norway and the UK, pointing to a currency effect on stock markets. In view of the findings reported herein, policies aiming at reducing uncertainty in the stock markets can exert beneficial effects on currency markets.

ISSN

1309-422X

Publisher

Springer International Publishing

Volume

6

Issue

2

First Page

215

Last Page

274

Disciplines

Business

Keywords

Capital markets, Effective exchange rates, Non-linear cointegration

Scopus ID

85020176200

Indexed in Scopus

yes

Open Access

no

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