Cointegration And The Causality Between Stock Prices And Exchange Rates Of The Korean Economy

Abstract

This paper examines the relationship between stock prices and exchange rates in Korea. It is found that two time series are cointegrated by the Engle-Granger two-step cointegration test. The results show that domestic currency devaluation has a negative short-run effect on stock prices. It means that there is only one-way temporal linkage from exchange rates to stock prices.