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Economic Integration and the Currency and Equity Markets Nexus

Aftab, M., Ahmad, R., Ismail, I. & Phylaktis, K. ORCID: 0000-0001-9392-1682 (2020). Economic Integration and the Currency and Equity Markets Nexus. International Journal of Finance and Economics, doi: 10.1002/ijfe.2065


The paper examines the impact of economic integration on the relationship between the currency and equity markets for a group of Asian emerging economies using both linear and nonlinear frameworks. We first derive the dynamic conditional correlations between the two markets and then examine the impact of economic integration on their relationship. Our main results are: (i) there is a negative correlation between real exchange rate changes and equity return differentials for all countries apart from China, which becomes deeper during the GFC for some of the countries; (ii) economic integration, both real and financial, has an asymmetric impact on the relationship between the two markets both in the short-run and in the long-run; and (iii) applying a linear framework does not bring out the impact of financial integration.

Publication Type: Article
Additional Information: © 2020 The Authors. International Journal of Finance & Economics published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution‐NonCommercial‐NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non‐commercial and no modifications or adaptations are made.
Publisher Keywords: Economic integration, real exchange rate changes, stock return differentials, dynamic conditional correlations
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
Text - Published Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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