1.1. Granger causality test
1.1.1. Pre-crisis period from 2005 to 2007 Since we aim to compare the causal relationship between stock price and exchange rate before and after the 2008 global financial crisis, we analyze the Granger causality test results in different subperiods separately first. Before the test, we use final prediction error (FPE) criterion to select lag orders. During the pre-crisis period from 2005 to 2007, an optimal lag length of one was selected for all the seven markets. The Granger causality test results for pre-crisis period are shown in table 4.
Table 4
Granger causality test results for pre-crisis period from 2005 to 2007
Market Ho F-value Prob>F Coefficient P>|t|
China ΔlnEXt≠>ΔlnSt 0.19 0.8233 ΔlnSt(-1) 0.973 ΔlnEXt(-1) 0.535 ΔlnSt≠>ΔlnEXt 0.10 0.9025 ΔlnSt(-1) 0.927 ΔlnEXt(-1) 0.662
Taiwan ΔlnEXt≠>ΔlnSt 3.20*** 0.0415 ΔlnSt(-1) 0.255 ΔlnEXt(-1) 0.065 ΔlnSt≠>ΔlnEXt 1.77 0.1714 ΔlnSt(-1) 0.214 ΔlnEXt(-1) 0.306
Singapore ΔlnEXt≠>ΔlnSt 5.55*** 0.0041 …show more content…
However, like Malaysia, causal relationship of stock price on exchange rate is also much stronger in Malaysia. Movements in exchange rate significantly cause movements in stock price for Philippines because stock price in Philippines may be highly autocorrelated. In contrast, movements in exchange rate are very well explained by movements in stock price in previous time. All in all, there is also no common pattern for import-dominant markets. Although no common pattern is found comparing import-dominant and export-dominant markets, we surprisingly find that a common pattern exists between advanced markets and emerging markets except for China. For Hong Kong, Taiwan, and Singapore, the common role is that movements in exchange rate cause movements in stock price. Meanwhile, for Malaysia, India, and Philippine, the common pattern is that movements in stock price cause movements in exchange rate significantly.
1.1.2. Financial crisis period from 2008 to
1.1.1. Pre-crisis period from 2005 to 2007 Since we aim to compare the causal relationship between stock price and exchange rate before and after the 2008 global financial crisis, we analyze the Granger causality test results in different subperiods separately first. Before the test, we use final prediction error (FPE) criterion to select lag orders. During the pre-crisis period from 2005 to 2007, an optimal lag length of one was selected for all the seven markets. The Granger causality test results for pre-crisis period are shown in table 4.
Table 4
Granger causality test results for pre-crisis period from 2005 to 2007
Market Ho F-value Prob>F Coefficient P>|t|
China ΔlnEXt≠>ΔlnSt 0.19 0.8233 ΔlnSt(-1) 0.973 ΔlnEXt(-1) 0.535 ΔlnSt≠>ΔlnEXt 0.10 0.9025 ΔlnSt(-1) 0.927 ΔlnEXt(-1) 0.662
Taiwan ΔlnEXt≠>ΔlnSt 3.20*** 0.0415 ΔlnSt(-1) 0.255 ΔlnEXt(-1) 0.065 ΔlnSt≠>ΔlnEXt 1.77 0.1714 ΔlnSt(-1) 0.214 ΔlnEXt(-1) 0.306
Singapore ΔlnEXt≠>ΔlnSt 5.55*** 0.0041 …show more content…
However, like Malaysia, causal relationship of stock price on exchange rate is also much stronger in Malaysia. Movements in exchange rate significantly cause movements in stock price for Philippines because stock price in Philippines may be highly autocorrelated. In contrast, movements in exchange rate are very well explained by movements in stock price in previous time. All in all, there is also no common pattern for import-dominant markets. Although no common pattern is found comparing import-dominant and export-dominant markets, we surprisingly find that a common pattern exists between advanced markets and emerging markets except for China. For Hong Kong, Taiwan, and Singapore, the common role is that movements in exchange rate cause movements in stock price. Meanwhile, for Malaysia, India, and Philippine, the common pattern is that movements in stock price cause movements in exchange rate significantly.
1.1.2. Financial crisis period from 2008 to