Stock market information and the relationship between real exchange rate and real interest rates
Abstract
In this paper we propose to augment the traditional relationship between real exchange rates and real interest rates (RERI) by adding the stock market equilibrium condition to it. We introduce the relative dividend yield as the new information variable. In the empirical analysis we use recent monthly observations from the U.K., Japan, Canada and Eurozone, all relative to the U.S. We show that the introduction of stock market information is highly relevant for the functioning of the RERI hypothesis. Based on the results from the cointegration analysis the role of relative stock market performance is especially important in the short-
term (3 month) horizon, where the augmented RERI representation is
most stronlgy supported.
Main Authors
Format
Articles
Research article
Published
2013
Series
Subjects
Publication in research information system
Publisher
Routledge
The permanent address of the publication
https://urn.fi/URN:NBN:fi:jyu-201401291151Use this for linking
Review status
Peer reviewed
ISSN
0960-3107
DOI
https://doi.org/10.1080/09603107.2013.776662
Language
English
Published in
Applied Financial Economics
Citation
- Junttila, J.-P., & Korhonen, M. (2013). Stock market information and the relationship between real exchange rate and real interest rates. Applied Financial Economics, Vol 23(No 11), 901-920. https://doi.org/10.1080/09603107.2013.776662
License
Copyright© 2013 Taylor & Francis