The Relationship Between Stock Price Index and Exchange Rate: BRIC Countries

Student: Semenova Anna

Educational Programme: Bachelor

Year of Graduation: 2014

This paper investigates a causal relationship between the stock markets and exchange rates in BRIC countries in 2004-2013. Literature review suggests common theories such as goods market hypothesis and portfolio balance approach. Daily data of stock prices and exchange rates divided into 3 sub-periods is used. In order to investigate short-term relationship Granger causality test is used. Cointegration is tested by Engle-Granger two-step procedure. A causal relationship from stock market to exchange rates was found in Russia in all 3 sub-periods, while no causal relationship was found in China. Interpretation is presented along with tests results.

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