The impact of exchange rates on stock market returns: new evidence from seven free-floating currencies

Alireza Zarei, Mohamed Ariff, M. Ishaq Bhatti

Research output: Contribution to journalArticle

1 Downloads (Pure)

Abstract

This paper provides evidence of a significant exchange rate effect on stock index returns using data from seven selected countries practicing free-floating exchange rate regimes. This research uses parity and asset pricing theories, thus placing it within the monetary-cum-economics framework for international asset pricing. In this study, we apply a system of seemingly unrelated regression to control for unobserved heterogeneity and cross-sectional dependence. The findings constitute evidence of a statistically significant exchange rate impact on stock index returns across selected countries. These findings can be considered as falling under the arbitrage pricing approach of the international capital asset pricing model of Solnik who also used the parity-theoretical framework on exchange rate determination.

Original languageEnglish
Pages (from-to)1277-1288
Number of pages12
JournalEuropean Journal of Finance
Volume25
Issue number14
Early online date21 Mar 2019
DOIs
Publication statusPublished - 22 Sep 2019
Externally publishedYes

Bibliographical note

This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance, on 21/03/2019, available online: http://www.tandfonline.com/doi/full/10.1080/1351847X.2019.1589550

Keywords

  • arbitrage pricing
  • Exchange rates
  • international asset pricing
  • macroeconomic factor
  • parity factors

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

Fingerprint Dive into the research topics of 'The impact of exchange rates on stock market returns: new evidence from seven free-floating currencies'. Together they form a unique fingerprint.

  • Cite this