Causality and dynamic relationships between exchange rate and stock market indices in BRICS countries Panel/GMM and ARDL analyses

• Autores: Mroua, Mourad, Trabelsi, Lotfi
• Formato: artículo
• Fecha de Publicación: 2020
• Institución: Universidad ESAN
• Repositorio: ESAN-Institucional
• Lenguaje: inglés
• OAI Identifier: oai:repositorio.esan.edu.pe:20.500.12640/2789
• Enlace del recurso: https://revistas.esan.edu.pe/index.php/jefas/article/view/50; https://hdl.handle.net/20.500.12640/2789; https://doi.org/10.1108/JEFAS-04-2019-0054
• Nivel de acceso: acceso abierto
• Materia: BRICS; Co-movement; Exchange rate; Stock markets; Dynamic panel/GMM; ARDL method; Co-movimiento; Tipo de cambio; Mercados de valores; Panel dinámico/GMM; Método ARDL; https://purl.org/pe-repo/ocde/ford#5.02.04

Purpose: This paper aims to investigate simultaneously the causality and the dynamic links between exchange rates and stock market indices. It attempts to identify the short- and long-term effect of the US dollar on major stock market indices of Brazil, Russia, India, China and South-Africa (BRICS) nations. Design/methodology/approach: This paper applies a new methodology combining the panel generalized method of moments model and the panel auto-regressive distributed lag (ARDL) method to investigate the existence of a causal short-/long-run relationships and dynamic dependence among all stock market returns and exchanges rates changes of BRICS countries. Findings: Results show that exchange rate changes have a significant effect on the past and the current volatility of the BRICS stock indices. Besides, ARDL estimations reveal that exchange rate movements have a significant effect on short- and long-term stocks market indices of all BRICS countries. Originality/value: The findings have implications for policymakers and market participants who try to manage the exchange rate will have a different dose of intervention if they know that the effects of currency depreciation are different than appreciation. These results have important implications that investors should take into account in frequency-varying exchange rates and stock returns and regulators should consider developing sound policy measures to prevent financial risk.