STOCK PRICE AND EXCHANGE RATE CAUSALITY: THE CASE OF FOUR ASEAN COUNTRIES

The purpose of this study is to investigate the statistical relationship between stock prices and exchange rates using Granger causality and Johansen cointegration tests in four ASEAN countries (Indonesia, the Philippines, Singapore, and Thailand) over the period 1993–2002. Exchange rates and stock prices of four ASEAN countries will be examined. This study analyses these causal relationships using percentage changes. Using the Granger test for determining unidirectional causality, this study finds that the relationship between stock prices and exchange rates is characterized by a feedback system, with the Singapore dollar as the dominant exchange rate. The Johansen cointegration test finds that all of the stock prices and exchange rates in the four countries are cointegrated. With respect to the relationship between stock prices and exchange rates, the results are not as conclusive but causality is from exchange rates to stock prices