On the relation between stock prices and exchange rates: a review article

Abstract

Purpose – While changes in stock prices are said to affect exchange rates, exchange rate changes are also said to affect stock prices. The purpose of this paper is threefold. First, the authors review all empirical literature by dividing them into two groups of univariate and multivariate studies. Second, a table which summarizes the main features of each study is provided to help future researchers to have easy access to summary of each study. Finally, a new direction for future research is proposed. This new direction relies upon non-linear ARDL approach and shows how to investigate symmetric vs asymmetric effects of exchange rate changes on stock prices. Design/methodology/approach – The paper reviews existing published work and provides suggestions for future research. Findings – The paper reviews existing published work and provides suggestions for future research. An application reveals that exchange rate changes have asymmetric effect on stock prices. Originality/value – This is the first review paper on the relation between exchange rates and stock prices.