Zohrabyan, Tatevik (2005-12). The effect of the currency movements on stock markets. Master's Thesis. Thesis uri icon


  • This paper uncovers the relationship between stock markets and exchange rates
    in seven countries by employing stable aggregate currency (SAC) for the period of 1973-
    2004. Ordinary Least Squares (OLS) regression, time series methods, and directed
    acyclic graphs are applied to the daily data on stock market indices and exchange rates.
    The findings based on regression analysis show that exchange rate exposure of stock
    markets is statistically significant when stock indexes in SAC are used. Using an
    innovation accounting technique, we confirm that stock markets and exchange rates are
    correlated. Moreover, in most cases stock markets are more exogenous than foreign
    currency markets, which explains the relatively high percentage of uncertainty in the
    foreign currency market. Overall, SAC-based models give relatively more accurate and
    robust results than those which employ stock indices in local currencies, because it is
    more accurate to convert both variables into the same denominator.

publication date

  • December 2005