COINTEGRATION BETWEEN STOCK MARKET INDICES AND NOMINAL EXCHANGE RATES: EVIDENCE FROM TRANSITION COUNTRIES
DOI:
https://doi.org/10.7251/ZREFIS1510035PKeywords:
stock market indices, nominal exchange rates, Augmented Dickey-Fuller test, Engle-Granger cointegration test, Granger causality testAbstract
This paper analyzes the interdependence between stock market indices and exchange rates in four transition countries: Croatia, Serbia, Hungary and the Czech Republic. The analysis is based on monthly data for the nominal exchange stock market indices and nominal exchange rates over the period from March 2010 to March 2015. The main objective of this work is to determine whether the exchange rates had a significant impact on future trends in the capital markets and vice versa. Empirical analysis has shown that the series are stationary in the first differences, and using both Engle-Granger cointegration and Granger causality test it has been shown, as well, that there is neither long-run nor short-run relationship between these two variables. In other words, it means that prediction of movement of one variable cannot be based on past values of other variableReferences
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