The US Dow and the US dollar

Abstract

This article considers the relation between the US Dow Jones Industrial Average (Dow) and the US dollar. Monthly data sets that cover the float period of foreign exchange rates are used. Least square regressions with calendar breakpoints are estimated. The evidence is strong that for the ten currencies that have breakpoints the recent samples uncover a significant relation between the US Dow and the US dollar, while the older samples negate such a relation. The conclusion is that this relation is subject to shifts and, when these shifts are accounted for, the relation is found to be statistically very significant.

Keywords:

• DJIA
• US Dow
• US dollar
• eleven foreign currencies
• Gordon dividend model
• least squares with breakpoints

JEL Classification:

• G12
• F31
• C22
• C12