Systematic Review of Nexus between Exchange Rate Fluctuations and Stock Market Price Movements: Flow Oriented Theory, Stock Oriented Theory and Portfolio Balance Theory

Abstract

The study investigated literatures on nexus between exchange rate fluctuations and stock market price movements: flow oriented theory, stock oriented theory and portfolio balance theory. It was discovered that many studies predominantly found out statistically significant positive nexus between exchange rate fluctuations and stock market price movements (Parsva & Lean, 2017; Mechri, Ben Hamad, De Peretti & Charfi, 2018; Morales-Zumaquero & Sosvilla-Rivero, 2018; Bahrnani-Oskooee & Saha,2016; Ho & Huang,2015; Sui & Sun,2016; Mroua & Trabelsi,2019; Nazakat & Kashif,2017; Yildirim & Adali, 2018; Fapetu, Adeyeye, Seyingbo & Owoeye,2017; Okechukwu, Mbadike, Geoffrey & Ozurunma,2019; Bagh, Azad, Razzaq, Liaqat & Khan,2017; Alzyoud, Wang & Basso, 2018) while very scanty and few studies revealed a negative significant relationship and statistically insignificant. Various studies conducted shows different results on asymmetric and symmetric effects and causality: bidirectional, unidirectional and no causality between exchange rate fluctuations and stock market price movements. Some results support the ?ow oriented theory, some are for the stock oriented theory and portfolio balance theory while others believe that three theories are functional in an economy. Variation in these studies could be as a result of methodology used, market condition, risk and other factors that are peculiar to each economy. The study discovered other factors namely GDP of a country, level of employment, companies business internal ?nancing structure, investment inflow, inflation rates, oil prices, government expenditure, in?ation rate, interest rate, and exchange rate that have effect on stock market movements. The empirical studies examined recommended as follows: Regulators should consider developing sound policy measures to prevent ?nancial risk. The public who desire to invest must utilize the information of important macro-economic variable in particular exchange rates vol