On the Relationship Between Exchange Rates and Stock Prices: Evidence from Emerging Markets

This study examines dynamic linkages between the exchange rates and stock prices for twelve emerging market countries for the period from May 1994 to April 2010 by using linear and non-linear Granger causality tests. Our empirical results show that stock prices and exchange rates have linear and non-linear bi-directional causality in most cases. The exceptional countries are Brazil, Poland and Taiwan, in that there is no evidence for a non-linear Granger causality from stock prices to exchange rates. The results support both the portfolio balance and the goods market theories for eight out of twelve countries. JEL Classifications Codes: F30, G15