• The Journal of Asian Finance, Economics and Business
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• v.8 no.6
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• pp.543-552
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• 2021

The study examines how foreign capital inflows affect stock market development in Pakistan for the period from July 2008 to June 2018. Several components of foreign capital inflows were used for empirical analysis, namely, foreign direct investment, foreign portfolio investment, and remittances. Further, market capitalization was used as a proxy for stock market development. The study uses an ARDL model for examining the long-run and short-run relationships between variables. We also analyze the bi-directional causality between the variables through the Granger causality test. Further, the presence of structural breaks was analyzed through the CUSUM and CUSUM Square test. The results suggest that in the long run, remittances have a positive and significant relationship with stock market development. However, foreign direct investment, foreign portfolio investment, and USD-PKR exchange rate do not have a significant impact on stock market development. The results also suggest that in the short run there is a negative relationship between FDI, USD-PKR exchange rate and market capitalization. Contrarily, we found a positive relationship between FPI and market capitalization. The results of Granger causality test suggest that remittances and USD-PKR exchange rate have a causal relationship with stock market development. Finally, we found no evidence of structural breaks in the dataset.

• Journal of the Korean Data and Information Science Society
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• v.20 no.4
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• pp.655-660
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• 2009

As the global economic crisis, the Korean foreign exchange market appears unstable with large fluctuations in exchange rate. Inevitably, there is growing attention on price variables such as exchange rate and interest rates and also on corelation between the factors. This is an empirical study on the causality of fluctuation between exchange rate and interest rate in the Korean market under global economic crisis. The fluctuations in won/dollar exchange rate and call rate are described and followed by analysis of lead-lag relationship between the two variables using Cross-correlation function and Granger causality test.

• East Asian Economic Review
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• v.27 no.2
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• pp.115-143
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• 2023

In this paper, we address how the monetary authority should react to financial market status and exchange rate movements in a small open economy New Keynesian model with financial frictions due to asymmetric information between savers and borrowers. We show that the small economy with financial frictions is more susceptible to the exogenous shocks under the fixed exchange rate regime than under the flexible exchange regime. The small economy experiences a more prolonged and deeper economic recession under the fixed exchange rate regime than under the flexible exchange rate regime. The monetary policy taking into account external finance premium is better than the interest rate rule without considering the financial market status.

• East Asian Economic Review
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• v.19 no.3
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• pp.275-322
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• 2015

The key objective of this study is to investigate the return and volatility spillover effects among stock market, credit default swap (CDS) market and foreign exchange market for three countries: Korea, the US and Japan. Using the trivariate VAR BEKK GARCH (1,1) model, the study finds that there are significant return and volatility spillover effects between the Korean CDS market and the Korean stock market. In addition, the return spillover effects from foreign exchange markets and the US stock market to the Korean stock market, and the volatility spillover effect from the Japanese stock market to the Korean stock market are both significant.

• The Journal of Asian Finance, Economics and Business
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• v.6 no.2
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• pp.257-267
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• 2019

The paper aims to test long-term and short-term causality from four exchange rates, the Korean won/$US, the Korean won/Euro, the Korean won/Japanese yen, and the Korean won/Chinese yuan, to the Korea Composite Stock Price Index in the presence of several macroeconomic variables using monthly data from January 1986 to June 2018. The results of Johansen cointegration tests show that there exists at least one cointegrating equation, which indicates that long-run causality from an exchange rate to the Korean stock market will exist. The results of vector error correction estimates show that: for long-term causality, the coefficient of the error correction term is significant with a negative sign, that is, long-term causality from exchange rates to the Korean stock market is observed. For short-term causality, the coefficient of the Japanese yen exchange rate is significant with a positive sign, that is, short-term causality from the Japanese yen exchange rate to the Korean stock market is observed. The coefficient of the financial crises i.e. 1997-1999 Asian financial crisis and 2007-2008 global financial crisis on the endogenous variables in the model and the Korean economy is significant. The result indicates that the financial crises have considerably affected the Korean economy, especially a negative effect on money supply.

• The Korean Journal of Financial Studies
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• v.9 no.1
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• pp.221-244
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• 2003

This study is aimed to investigate the effects of foreign exchange rates on stock market returns. For the United States, the United Kingdom, Germany, Japan and Korea, the cross-correlation precedence of foreign exchange rate on stock market is found in the case of Germany and Korea. But that of stock market is not observed in any case. We performed three kinds of causality and exogeneity test of Granger test, Sims test and Geweke-Meese-Dent test. The analyses on the full period show the time-lag causal, exogeneous relation of foreign exchange rates with Granger, Sims and GMD test for Korea. The United Kingdom presents the significance with Granger and Sims test while Germany reveals the time-lag relation with Granger and GMD test. When we divide the period into two parts with the Louvre Accord, the first part give the less degree of time-lag relation. But in the second period the three kinds of causality and exogeneity test propose consistent time-lag relation with foreign exchange rates on stock markets for the United Kingdom and Korea with the three test methods. And Granger's test prove German foreign exchange market have a time-lag relation on stock market.

• The Korean Journal of Financial Management
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• v.25 no.4
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• pp.53-78
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• 2008

Foreign investors who invest in the Korean stock markets are exposed to two kinds of foreign exchange rate risk, the economic exposure and the translation exposure. The former is the foreign exchange rate exposure in return generating process of the assets invested and the latter is the foreign exchange rate exposure in the translation of domestic return into foreign investors' currency. Domestic investors, however, are exposed only to foreign exchange rate exposure in the asset invested. This different situation on foreign exchange rate exposure between foreign investors and domestic investors can induce different response to exchange rate change by investor groups. Previous studies on foreign exchange rate exposure of Korean firms reported that quite a few Korean firms are exposed to foreign exchange risks and suggested to manage the foreign exchange risks. Also, many studies on the market segmentation showed that a market can be practically segmented according to the characteristics of investor groups. These studies support the hypothesis that the Korean stock market can be practically segmented by the foreign investors' attitude to the foreign exchange rate exposure. This study examines the response of both foreign investors and domestic investors to the foreign exchange rate exposures in Korean stock markets. Test results show that foreign investors increase their sell transactions when the foreign exchange rate exposure of the previous day is negative. This result can be possible when foreign investors attempt to actively manage the decrease in value of their assets due to rising of exchange rate. Analysis on the sell order data is also supportive to this interpretation. Foreign investors also increase their buy transactions when the foreign exchange rate exposure of the previous day is negative. This result can be possible when foreign investors use actively the relation between the increase in asset value and the translation gain due to declining of exchange rate. Analyses on buy order data, however, do not show the same result as the analyses on transaction data. This difference may come from the difference of information contained in transaction data and order data. In summary, the result of the paper supports the hypothesis that foreign investors response differently to foreign exchange rate exposure compared with domestic, Korean investors. Two groups do not show different response when exchange rate exposure is positive, i.e., as foreign exchange rate is increase (decrease), the asset value is increase (decrease). However, foreign investors' response is different from that of domestic investors when exchange rate exposure is negative, i.e., as foreign exchange rate is increase (decrease), the asset value is decrease (increase). These results mean that foreign investors and domestic investors are placed in different situations related to foreign exchange rate exposure, and these differences are reflected in the Korean stock markets. And domestic investors need to consider foreign investors' different attitude to the foreign exchange rate exposure when they analysis foreign investors' trading behavior.

• The Journal of Asian Finance, Economics and Business
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• v.6 no.4
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• pp.37-43
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• 2019

The research aims to study the relationship between export performance and stock return of Vietnamese fishery companies. To conduct this study, quarterly data was collected for period from 2010-2018 of 13 fishery companies listing in Ho Chi Minh Stock Exchange (HOSE) and Ha Noi Stock Exchange (HNX). The export performance was measured by export intensity, export growth and export market coverage. In addition, interest rate, exchange rate, GDP, firm size, profitability, and financial leverage were considered as the control variables in the research model. Panel data analysis with Generalized Least Squares model was employed to estimate the predictive regression. The findings indicated that export intensity and export growth have a significant and positive relationship with stock returns. However, export market coverage has not a significant relationship with stock return at the 0.05 level. Profitability, financial leverage, and exchange rate have a positive relationship, while interest rate and GDP have no relation to stock return at the 0.05 significance level. The findings imply that investors should consider the export intensity instead of export growth and export market coverage as selecting stock of fishery exports firms to invest; managers should increase export intensity to increase company's stock price or firm market value.

• KDI Journal of Economic Policy
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• v.12 no.1
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• pp.111-125
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• 1990

For the last several years, considerable criticism has been leveled against Korea's exchange rate management. While Korea was designated a currency manipulator by the U.S., domestically it is often complained that the won/dollar rate did not adequately reflect changes in Korea's export competitiveness and fluctuations in the exchange rates of major currencies. In view of this situation, Korea changed its exchange regime at the beginning of March this year from the dual currency basket system to a more flexible one, called a "market average rate regime". Under this new regime, the won rate is determined in the exchange market based upon the supply of and demand for foreign exchange and is allowed to freely fluctuate each day within a + 0.4 % range. This paper, first, seeks to evaluate Korea's exchange rate management under the dual basket regime of the 1980s, and then to construct an optimal currency basket for the won which could provide a proper indicator for exchange market intervention under the new market average rate regime. The analysis of fluctuations in the real effective exchange rate (REER) of the won indicates that the won rates in the 1980s failed not only to offset changes in relative prices between home and trading partner countries, but also to properly respond to variations in major exchange rates as further evidenced by sizable fluctuations in the nominal effective rates of the won. In other words, the currency basket regime which was adopted in 1980 for the stabilization of the REER of the won has not been operated properly, mainly because authorities often resorted to policy considerations in determining the won's rate. In the second part of the paper, an optimal currency basket for Korea is constructed, designed to minimize the fluctuations in the REER of the won without including policy considerations as a factor. It is recognized, however, that both domestic and foreign price data are not available immediately for the calculation of the REER. For this problem, the approach suggested by Lipschitz (1980) is followed, in which optimal weights for currencies in the basket are determined based upon the past correlation between price and exchange rates. When the optimal basket is applied to Korea since the mid-80s, it is found that the REER of the won could have been much more stable than it actually was. We also argue for the use of variable weights rather than fixed ones, which would be determined by the changing relationship between exchange rates and relative prices. The optimal basket, and the optimal basket exchange rate based on that basket, could provide an important medium- or long-term reference for proper exchange market intervention under the market average rate regime, together with other factors, such as developments in the current account balance and changes in productivity.

• Journal of the Korean Operations Research and Management Science Society
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• v.9 no.2
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• pp.34-45
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• 1984

The aim of this study is to investigate efficiency of foreign exchange markets for 8 currencies for the floating rate regime 1974～1982 by comparison of various foreign exchange rate forecasting models’performances. The author presents evidences showing that efficient market hypothesis was not supported.