TRILATERAL RELATIONSHIP AMONG FOREIGN EXCHANGE RATES, OIL PRICES, AND STOCK RETURNS IN THAILAND: A DYNAMIC APPROACH

This study examines the trilateral relationship among foreign exchange rates (FX), oil prices (CRUDE), and stock market returns (SET) in Thailand weekly data starts from 2 January 2008 to 22 May 2018 totally 543 observations. This result divided by 3 conclusions. Firstly, the results show that the foreign exchange rate is the only factor with a significant negative impact on stock market returns and oil prices. On the contrary, oil prices are positively correlated to the stock market index. Secondly, Generalised Autoregressive Conditional Heteroscedasticity (GARCH) model provided similar qualitative results with coefficients typically larger for lag volatility than for past shock. Lastly, dynamic conditional correlation (DCC) shows the result that a “CRUDE-SET” pairing is the only positive zone, implying that an increase (decrease) in oil prices creates an increase (decrease) in stock market returns and vice versa. However, a “SET-FX” pairing shows a negative correlation similar to a “CRUDE-FX” pairing. In conclusion, depreciation (appreciation) in local currency impacts on oil prices and stock market returns, creating a decrease (increase)