Revisiting a story of two countries in East Asia after Abenomics

Abstract

This article provides empirical evidence of the relationship between currency depreciation and stock market return using Korean and Japanese nonfinancial firms’ data. Although the recent FX market circumstances have changed compared to Choi et al. (2010), we can still confirm the beggar-thy-neighbour using the extended sample period. Beggar country may change depending on the sample period, but Eichengreen and Sachs (1985) hypothesis can hold across the different macroeconomic circumstances. Currency depreciation is positively related to stock market return controlling for the firm-specific variables. The result shows that Japanese exporting firms would be advantageous due to the Japanese Yen (JPY) depreciation, and this situation is expected to continue under the Abenomics policy regime.

Keywords:

• currency depreciation
• stock return
• international sales
• monetary policy

JEL Classification:

• F31
• G00
• E52

Notes

¹ Fang (2002), Pan et al. (2007) and Kim and Ying (2007).