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Nexus between Stock Exchange Index and Exchange Rates

Received: 24 October 2013     Published: 10 November 2013
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Abstract

This study is about to analyze the nexus between stock exchange index and exchange rates. Secondary data, namely the daily Dhaka Stock Exchange General Index and the BDT/USD Exchange Rates data from December 02, 2012 to April 30, 2012 are used for the study perpose. The findings of this study revealed that 73.1802% of the variation in DSE general index returns is explained by the BDT/USD exchange rates returns which imply that there is a strong nexus between these two financial series. LM test’s outcomes indicate that there is a serial correlation at order 1; historical figures of the residuals can be applied to predict the present values of residuals. ARCH test illustrates that the residuals are hete-roskedastic; and variance of residuals is not constant. Normality test of the distribution of the residuals shows that the resi-duals are normally distributed.

Published in International Journal of Economics, Finance and Management Sciences (Volume 1, Issue 6)
DOI 10.11648/j.ijefm.20130106.20
Page(s) 330-334
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2013. Published by Science Publishing Group

Keywords

ARCH, LM, Stock Index, Exchange Rates

References
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[3] Ajayi, R. A. and Mougoue. M. (1996) . On the dynamic relation between stock prices and exchange rates. Journal of Financial Research, 19, 193–207.
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[7] Hamrita, M. E. and Trifi, A. (2011). The relationship between interest rate, exchange rate and stock price: A wavelet analysis. International Journal of Economics and Financial Issues, 1( 4), 220-228.
[8] Ismail, M. T. and Isa, Z. B. ( 2009) . Modeling the interactions of stock price and exchange rate in Malaysia. The Singapore Economic Review, 54 (4), 605–619.
[9] Ma, C.K. and Kao, G.W. ( 1990). On exchange rate changes and stock price reactions. Journal of Business and Accounting, 17(2), 441-449.
[10] Mishra, A. K.. (2004). Stock market and foreign exchange market in India: Are they related. South Asian Journal of Management, 11, 12–31.
[11] Morley, B. and Pentecost, E. J., 2000 . Common trends and cycles in G-7 countries exchange rates and stock prices. Applied Economics Letters, 7, 7-10.
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[13] Oskooee, M. B. and Sohrabian, A. (1992). Stock prices and the effective exchange rate of the dollar. Applied Economics, 24, 459-464.
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[17] Srinivasan, P. (2011). Causal nexus between stock market return and selected macroeconomic variables in India: Evidence from the National Stock Exchange (NSE). The IUP Journal of Financial Risk Management, 8( 4), 7-25.
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  • APA Style

    Md. Zahangir Alam, Muhammad Abdur Rahim. (2013). Nexus between Stock Exchange Index and Exchange Rates. International Journal of Economics, Finance and Management Sciences, 1(6), 330-334. https://doi.org/10.11648/j.ijefm.20130106.20

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    ACS Style

    Md. Zahangir Alam; Muhammad Abdur Rahim. Nexus between Stock Exchange Index and Exchange Rates. Int. J. Econ. Finance Manag. Sci. 2013, 1(6), 330-334. doi: 10.11648/j.ijefm.20130106.20

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    AMA Style

    Md. Zahangir Alam, Muhammad Abdur Rahim. Nexus between Stock Exchange Index and Exchange Rates. Int J Econ Finance Manag Sci. 2013;1(6):330-334. doi: 10.11648/j.ijefm.20130106.20

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  • @article{10.11648/j.ijefm.20130106.20,
      author = {Md. Zahangir Alam and Muhammad Abdur Rahim},
      title = {Nexus between Stock Exchange Index and Exchange Rates},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {1},
      number = {6},
      pages = {330-334},
      doi = {10.11648/j.ijefm.20130106.20},
      url = {https://doi.org/10.11648/j.ijefm.20130106.20},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20130106.20},
      abstract = {This study is about to analyze the nexus between stock exchange index and exchange rates.  Secondary data, namely the daily Dhaka Stock Exchange General Index and the BDT/USD Exchange Rates data from December 02, 2012 to April 30, 2012 are used for the study perpose. The findings of this study revealed that 73.1802% of the variation in DSE general index returns is explained by the BDT/USD exchange rates returns which imply that there is a strong nexus between these two financial series. LM test’s outcomes indicate that there is a serial correlation at order 1; historical figures of the residuals can be applied to predict the present values of residuals. ARCH test illustrates that the residuals are hete-roskedastic; and variance of residuals is not constant. Normality test of the distribution of the residuals shows that the resi-duals are normally distributed.},
     year = {2013}
    }
    

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  • TY  - JOUR
    T1  - Nexus between Stock Exchange Index and Exchange Rates
    AU  - Md. Zahangir Alam
    AU  - Muhammad Abdur Rahim
    Y1  - 2013/11/10
    PY  - 2013
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    DO  - 10.11648/j.ijefm.20130106.20
    T2  - International Journal of Economics, Finance and Management Sciences
    JF  - International Journal of Economics, Finance and Management Sciences
    JO  - International Journal of Economics, Finance and Management Sciences
    SP  - 330
    EP  - 334
    PB  - Science Publishing Group
    SN  - 2326-9561
    UR  - https://doi.org/10.11648/j.ijefm.20130106.20
    AB  - This study is about to analyze the nexus between stock exchange index and exchange rates.  Secondary data, namely the daily Dhaka Stock Exchange General Index and the BDT/USD Exchange Rates data from December 02, 2012 to April 30, 2012 are used for the study perpose. The findings of this study revealed that 73.1802% of the variation in DSE general index returns is explained by the BDT/USD exchange rates returns which imply that there is a strong nexus between these two financial series. LM test’s outcomes indicate that there is a serial correlation at order 1; historical figures of the residuals can be applied to predict the present values of residuals. ARCH test illustrates that the residuals are hete-roskedastic; and variance of residuals is not constant. Normality test of the distribution of the residuals shows that the resi-duals are normally distributed.
    VL  - 1
    IS  - 6
    ER  - 

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Author Information
  • Department of Business Adminsitration, International Islamic University Chittagong, Dhaka Campus, Bangladesh

  • General Banking Department, Main Branch, Mercantile Bank Ltd., Dhaka, Bangladesh

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