The relationship between stock returns and the foreign exchange rate: the ARDL approach

Tian, Gary Gang and Ma, Shiguang 2010, The relationship between stock returns and the foreign exchange rate: the ARDL approach, Journal of the Asia Pacific economy, vol. 15, no. 4, pp. 490-508.

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Title The relationship between stock returns and the foreign exchange rate: the ARDL approach
Author(s) Tian, Gary Gang
Ma, Shiguang
Journal name Journal of the Asia Pacific economy
Volume number 15
Issue number 4
Start page 490
End page 508
Total pages 19
Publisher Taylor & Francis
Place of publication Oxford, Eng.
Publication date 2010
ISSN 1354-7860
Keyword(s) share market index
exchange rate
ARDL cointegration
Summary This study employs the ARDL cointegration approach in order to examine the impact
of financial liberalization on the relationships between the exchange rate and share
market performance in China. We discovered that cointegration has existed between the
Shanghai A Share Index and the exchange rate of the renminbi against the US dollar
and Hong Kong dollar since 2005, when the Chinese exchange rate regime became a
flexible, managed, floating system. We found that both the exchange rate and the money
supply influenced stock price, with a positive correlation. We further show that the
money supply increase was largely caused by a huge ‘hot money’ inflow from other
countries in recent years. After local currency appreciation, hot money, followed by
the money supply increase, pushed the market into a high level, based on expectations
regarding the local currency’s further appreciation.
Language eng
Field of Research 150201 Finance
Socio Economic Objective 900101 Finance Services
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2010, Taylor & Francis
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Document type: Journal Article
Collection: Department of Finance
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