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STOCK PRICES AND EXCHANGE RATES: THE CASES OF THE JAPANESE BANKING INDUSTRY AND MACHINERY INDUSTRY

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Author(s): Chikashi TSUJI (PhD)

Journal: Economics and Finance Review
ISSN 2047-0401

Volume: 1;
Issue: 3;
Start page: 41;
Date: 2011;
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Keywords: Cointegration | flow-oriented approach | stock-oriented approach | VAR | VECM.

ABSTRACT
We explore the direct linkage between the yen/US dollars exchange rates and the Japanese machinery industry equity prices and that between the exchange rates and the Japanese banking industry equity prices. Our empirical results indicate that there exist the negative relations between Japanese banking industry equity prices and the exchange rates, and the relations can be modeled by the Vector Error Correction Model since in our analyzing period, two variables have cointegrated relations. Contrary to this, in our sample period, we find that there exist weakly positive linkage between Japanese machinery industry equity prices and the yen/US dollars exchange rates, and the linkage can be modeled by the standard Vector Autoregressive model.
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