Interdependence between foreign exchange markets and stock markets in selected European countries

In this analysis the interdependence between foreign exchange markets and stock markets for selected accession and cohesion countries is discussed. This includes basic theoretical approaches. Monthly data for the nominal stock market indices and nominal exchange rates are used, where Ireland, Portugal, Spain, Greece, Poland, Czech Republic, Slovenia, and Hungary are included in the analysis. From the cointegration analysis and VAR analysis both long-term links and short-term links for Poland are identified. Conversely, for Slovenia, Hungary, Ireland, and Spain merely shortterm links resulted. Surprisingly, the direction of causation is unambiguously from the stock market index to the exchange rate for all six countries considered.

JEL Classification : G15, F31, E44


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