(An) empirical study on the relationship between the returns of stock prices and foreign exchange rate in industry level of korean financial market

Abstract

This study explores the linkage between stock price return and foreign exchange rate return, and further investigates whether the effects of stock price return on exchange return is significant or not. For empirical model, Vector Auto Regression (VAR) models are used to study the dynamic interrelations including unit root test, OLS, Granger causality test, impulse response function and other methods. The result shows that there is the negative effect between the returns of stock prices and foreign exchange rate. And not only stock return do Granger cause foreign exchange rate, but also foreign exchange rate dose Granger cause the return of stock prices.