• Title/Summary/Keyword: Seasonal unit root test

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Interrelationships between KRW/JPY Real Exchange Rate and Stock Prices in Korea and Japan - Focus on Since Korea's Freely Flexible Exchange Rate System - (한·일 원/엔 실질 환율과 주가와의 관계 분석 - 한국의 자유변동환율제도 실시 이후를 중심으로 -)

  • Kim, Joung-Gu
    • International Area Studies Review
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    • v.13 no.2
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    • pp.277-297
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    • 2009

  • This paper empirically investigates a long-run and short-run equilibrium relationships for exchange rate and stock prices in Korea and Japan from January 1998 to July 2008. Because using monthly data in my study, analyzes unit root test and VEC model including seasonality to overcome bias that happen in seasonal adjustment. The empirical evidence suggests that exists strong evidence supporting the long-run cointegration relationships between exchange rates and stock prices of the Korea and Japan. This implies that it is possible to predict one market from another for both countries, which seems to violate the efficient market hypothesis. In the long-run a negative relationship running from the KRW/JPY real exchange rate to the stock prices of Korea strongly argues for the traditional approach.