On the causality between stock prices and exchange rates: Evidence from Turkish financial market

Köse Y., Doǧanay M., Karabacak H.

Problems and Perspectives in Management, vol.8, no.1, pp.127-135, 2010 (Scopus) identifier

  • Publication Type: Article / Article
  • Volume: 8 Issue: 1
  • Publication Date: 2010
  • Journal Name: Problems and Perspectives in Management
  • Journal Indexes: Scopus, International Bibliography of Social Sciences, ABI/INFORM, PAIS International, Directory of Open Access Journals
  • Page Numbers: pp.127-135
  • Keywords: Augmented dickey-fuller test, Exchange rate, Granger causality, Stock price, Turkey
  • Ankara University Affiliated: Yes

Abstract

The aim of this paper is to investigate the existence and direction of relationship between stock prices and exchange rates for Turkish financial market. Granger (1969) causality testing methodology was employed to reveal the nature of relationship between the two variables. This work contributes to the existing body of literature in the way that in Turkish financial market, there is a uni-directional causality running from stock prices to exchange rates using the daily observations for the sample period, which runs from February 23, 2001to November 4, 2009. Also, the model used in this study extends the scope of exchange rate variables including a total of five currencies - US dollar, Euro, Japanese Yen, Pound Sterling, Swiss Franc and two baskets of currencies of Undersecretariat of Foreign Trade of Turkey. This evidence has implications for the policy makers and economic actors to perceive the movements in stock prices as a dynamic determinant, which may affect the success of their exchange rate policies. © Yaşar Köse, Murat Doǧanay, Hakan Karabacak, 2010.