Revisiting the relation between stock price and exchange rate - An asymmetric panel ARDL analysis

This study explores the long-run relation between stock prices and exchange rates of ASEAN-5 countries by using 105 monthly observations from August 1998 to January 2017. Specifically, this study analyzes whether stock prices of ASEAN-5 countries would respond asymmetrically to appreciation and depreciation in the exchange rates by employing the nonlinear autoregressive distributed lags (NARDL) approach. Given that cross sectional dependence is likely to present in the panel data, the second-generation unit root and cointegration tests are adopted. The empirical findings from pooled-mean-group (PMG) reveals a significant and positive long-run effect of exchange rate appreciation on stock prices of ASEAN-5, and that the stock prices do not respond to exchange rate depreciation. The findings suggest that the long-run relations between stock market and foreign exchange market in ASEAN-5 are asymmetric rather than symmetric.