RELATIONSHIP BETWEEN FOREIGN CURRENCY EXCHANGE RATE AND PRICE INDEX IN ASEAN-3: MALAYSIA, SINGAPORE AND THAILAND

ASEAN stock markets promote the growth of capital market and provide the investment opportunities to many investors. This study focuses on the relationship between the foreign currency exchange rate and stock price index among selected three ASEAN countries, which are Malaysia, Singapore and Thailand. This study included the data of exchange rate and stock price index from 1998:01 to 2012:12 among these countries. Empirical results reveal that the existence of long run causality runs predominantly from stock price index to foreign currency exchange rate for Malaysia, which supports portfolio approach theory. In contrary, for short run causality, Malaysia has no any significant linkage for these two variables. Both countries of Singapore and Thailand presence the unidirectional causality from stock price index to foreign currency exchange rate in short run. Hence, these countries also comply with the portfolio approach theory. Thus, managing these variables are indeed essential policy options in order to promoting economic growth and sustainability of financial markets in the region