Dynamic_Relations_between_Stock_Returns_and_Exchange_Rate_Changes股票回报与汇率变动之间的动态关系 文章.pdfVIP

European Financial Management, Vol. 20, No. 1, 2014, 71–106 doi: 10.1111/j.1468-036X.2011.00621.x Dynamic Relations between Stock Returns and Exchange Rate Changes∗ A. Can Inci College of Business, Bryant University, Smithfield, RI 02917, USA E-mail: ainci@ Bong Soo Lee College of Business, Florida State University, Tallahassee, FL 32306, USA E-mail: blee2@ Abstract We re-examine the relation between stock returns and exchange rate changes in five major European countries (France, Germany, Italy, Switzerland, and the UK), the USA, Canada, and Japan by taking into account dynamic effects, including lagged changes of variables, and employing causal relations. We find that lagged exchange rates have a significant impact on stock returns. We find evidence of Granger causality from exchange rate changes to stock returns, and also for the reverse direction. Furthermore, the dynamic relation has been more significant and stronger in recent years and recession periods than in early periods and expansion periods. Keywords: exchange rate exposure, Granger causality, forward premium puzzle JEL classification: F 31; G12; G15 1. Introduction Conventional studies that examine the relation between stock returns and exchange rate movements tend to focus on the contemporaneous effect of exchange rate changes on stock returns, using mainly the first moments of the relevant distributions. They usually document either a weak relation or mixed results. For example, Bodnar and Gentry (1993) do not find the relation in general, but do not necessarily reject a contemporaneous relation at the industry level either. Amihud (1994) and Griffin and Stulz (2001) do not find a relation, but their sample periods are dated. Studies such as Neiman (2010) ∗We would like to thank the editor, an anonymous referee, Jungwon Suh, and seminar participants at Florida S