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Exchange rate risk, stock transactions and financial integration : The Republic of Korea and Japan

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  • Exchange rate risk, stock transactions and financial integration
  • Mitra, Rajarshi
  • Korea Economic Institute of America


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Title Exchange rate risk, stock transactions and financial integration
Similar Titles
Sub Title

The Republic of Korea and Japan

Material Type Reports
Author(English)

Mitra, Rajarshi

Publisher

Washington, DC, U.S. : Korea Economic Institute of America

Date 2017-01
Pages 9
Subject Country Japan(Asia and Pacific)
South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Financial Policy
Economy < Economic System
Holding Korea Economic Institute of America
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Abstract

This paper examines the short-run and long-run relation between volatility in the real effective exchange rate and stock returns in the Republic of Korea. A trivariate vector autoregressive model is estimated in which the Japanese stock market is included as a variable representing the influence of both international and regional capital markets. All three variables, namely, stock returns in Korea and Japan and the real effective exchange rate are found to be integrated of order 1. The Johansen cointegration test indicates no long-run relation between the variables. Granger causality, however, indicates short-run bidirectional causality between volatility in the real effective exchange rate and stock returns in Korea, between volatility in the real effective exchange rate and stock returns in Japan, and also between stock returns in Korea and Japan. (The rest omitted)