Document Type

Conference Paper


This item is available under a Creative Commons License for non-commercial use only

Publication Details

Paper presented to the Doctoral Student Consortium. Financial Management Association (FMA) European Conference, 4th June, 2008 Prague, Czech Republic.


This thesis examines the relationship between exchange rates and stock prices in a number of European countries. We focus our attention in three different regions of Europe that are: four Eastern European markets, Czech Republic, Hungary, Poland and Slovakia, four South European Countries: Greece, Italy, Portugal and Spain and one West European Country: Ireland, using daily data we analyze the relationship between these two financial markets from 1996 to 2006. Both the long-run and the short-run association between these variables are analyzed. We employed the Engle and Granger two step and Johansen cointegration techniques, Vector Error Correction Modeling Technique and the standard Granger causality tests to examine the relationship between these two financial variables. We employ a bivariate a trivariate econometric techniques in order to provide and in depth analyses of the interlinkanges between these two financial variables. We also investigate the nature of volatility spillovers between stock returns and a number of exchange rates; we divide our sample period into a number of sub periods that will analyze the behavior of our variables before and post introduction of the Euro, using EGARCH modeling. Our findings show that exchange rates and stock prices seem to be independent. Overall there is no evidence of these two variables moving together either in the long-run or in the short-run. We found a unidirectional causality relationship running from stock prices to exchange rates in some of the countries introduced in our analysis. With regard to the volatility analysis there is some commonality regarding to the behaviour of the variables, it seems to exist a unidirectional spillover effect between the markets, which is found from the stock returns equation to the exchange rates equation. The lack of significant spillovers from exchange rate changes to stock returns found here for some countries across a number of exchange rates is consistent with existing research in this area.