The Relationship between Stock Price Index and Exchange Rate in Asian Markets: A Wavelet Based Correlation and Quantile Regression Approach
15 Pages Posted: 24 Apr 2013
Date Written: April 23, 2013
We use data set of five Asian countries to estimate the frequency and quantile based relationship between stock price index and exchange rate. We apply simple correlation and wavelet based correlation and in accordance with the portfolio balance effect, we find that the two variables are negatively related at all frequencies. Moreover it is found that correlation grows stronger with higher time scales. We further apply quantile regression to observe the various relationships between stock and foreign exchange markets at different quantiles of exchange rates. The results show an interesting pattern in the relation of these two markets in Asia, which indicates that the negative relation is asymmetric across different quantiles of exchange rates and more obvious when exchange rates are extremely low or both high and low.
Keywords: Quantile Regression, Wavelets, Asia
JEL Classification: G10, G15, C22
Suggested Citation: Suggested Citation