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Original Articles

Exchange rates and stock prices interaction during good and bad times: evidence from the ASEAN4 countries

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Pages 539-546 | Published online: 21 Aug 2006
 

Abstract

Using bootstrap causality tests with leveraged adjustments, the link between exchange rates and stock prices in Malaysia, Indonesia, Philippines and Thailand is investigated for the periods immediately before and during the 1997 Asian crisis. Two variables are found to be significantly linked in the non-crisis period but not at all during the crisis period. The implications of this result in terms of hedging, market efficiency, market integration and policy intervention are explained in the paper.

Notes

The LM test is used for testing for autocorrelation since this test has better size properties compared to other alternative tests (see Hatemi-J, Citation2004).

By causality is meant causality in the Granger sense. That is, the interested is to find out whether the past history of one variable has significant impact on the forecast of another variable or not.

For more details on leverage adjustment, see Davison and Hinkley (Citation1999) and Hacker and Hatemi-J (Citation2003). The latter authors introduce this adjustment for multivariate equation cases.

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