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

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

Fingerprint

Stock market returns
Floating
Exchange rates
Stock index
Parity
Currency
Monetary economics
Exchange rate determination
Unobserved heterogeneity
Placing
Seemingly unrelated regression
Capital asset pricing model
Exchange rate regimes
Asset pricing
Floating exchange rates
Arbitrage pricing
International asset pricing
Cross-sectional dependence
Theoretical framework

Keywords

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

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

Cite this

The impact of exchange rates on stock market returns : new evidence from seven free-floating currencies. / Zarei, Alireza; Ariff, Mohamed; Bhatti, M. Ishaq.

In: European Journal of Finance, Vol. 25, No. 14, 22.09.2019, p. 1277-1288.

Research output: Contribution to journalArticle

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