The Connectedness between Bitcoin, Stock Market, Gold, Oil, Bond and Exchange Rate: Evidence from Quantile VAR Approach and Portfolio Strategies

In this study, we used a wavelet analysis method to analyze how stock price index is correlated with exchange rate in South African stock market andinterest rate was choosen as the control variable. As indicated by the empirical results, first, stock index is significantly correlated with exchange rate in the stock market of South Africa, no matter in the short term (1-4 years) or the long term (4-8 years). There is a significant correlation period, with correlation coefficient greater than 0.8. Second, for the short-term (1-4 years) relationship, after adding control variables, South Africa’s short-term negative correlation will be led by the stock exchange rate. That is, in condition of the negativity of both stock market and exchange rate, the stock market leads. And interest rate greatly affects the short-term (1-4 years) exchange rate and the stock price index in South Africa. And in the short term, the linkage between those two variables is not subject to the influence of 2008 financial crisis. Third, for the long-term (4-8 years) relationship, when we add control variables, regardless of its term, there is a negative correlation between stock market index and exchange rate in South African stock market, and stock market affects exchange rate. The long-term (4-8 years) correlation of stock price index and exchange rate in South African stock market was affected by the 2008 financial crisis. South African market is indeed the goal for investors to participating enthusiastically now. The above conclusions can serve as a lesson for hedging in corporate exchange rate, stock market, and also reference for global investors and all sorts of investor asset allocation.

(ProQuest: ... denotes formulae omitted.)I. INTRODUCTIONThe interaction between stock market and currency market has been the subject of a long-drawn academic debate with inconclusive results. There are two competing hypotheses to explain these macroeconomic variables; traditional and portfolio approaches. The traditional approach, suggested by Dornbusch et al. (1980) is that exchange rate movements lead change in stock prices since the stock prices represent firm's values denominated in foreign currency. In contrast to traditional theory, portfolio approach, first discussed by Branson et al. (1977) postulates that changes in stock prices may have an influence on exchange rate via portfolio adjustments.Even though the theoretical explanations have attempted to show causal relation between stock market and exchange rate market, the empirical findings are rather mixed for the causal direction. Furthermore, the empirical results of causal relation between two financial markets have been varied by countries and time periods. Table 1 reports the summary of previous empirical studies.Abdalla and Murinde (1997) find the supportive evidences in favor of traditional approach using a country's monthly exchange rates. The studies show that there is uni-directional causality from exchange rate to stock return in India, Korea and Pakistan. Similarly, Wu (2000) shows Singapore-dollar exchange rates Granger stock prices. In contrast, Ajayi et al. (1998) find significant linkage between two financial markets by indicating uni-directional causality from the stock market to the currency market for advanced countries including Canada, France, Germany, Italy, Japan, U.K, and U.S from 1985 to 1991. Hatemi-J and Irandoust (2002) confirm that stock market tends to lead exchange rates in favor of the portfolio approach for Sweden. In a similar vein, Pan et al. (2007) find out there is unidirectional causal relationship from stock price to exchange rate for Korea and Singapore before Asian financial crisis.On the other hand, some of the studies have found bi-directional causality between two financial markets (Ajayi and Mougoue, 1996). In this regard, Pan et al. (2007) also provide evidences to indicate bi-directional causal relationship for Hong Kong before the Asian financial crisis. Granger et al. (2000) investigate causality based on Granger causality tests for nine Asian countries during the Asian financial crisis then obtain fairly differing results by country. They show that exchange rate market tends to lead the stock market in Japan and Thailand, which support traditional approach whereas stock market takes the lead in Taiwan. Furthermore, bi-directional relation is discovered for Korea, Malaysia and the Philippines. In Singapore, there exists no such causal relation.The ratio of foreign investors in Korean stock market has been high as shown in Table 3. It has been mostly more than thirty percent since 2001 and it reached its peak 40.1% in 2004. In other words, the foreign investment in Korea is a major component in Korean financial market. There have been numerous studies to investigate the relation between two financial markets, however, the existing literature is inconclusive on the relation between stock market and exchange rate.Korean stock market can be affected by the change in exchange rate of Korean Won via the traditional approach (Abdalla and Murinde, 1997; Kang and Yoon, 2012) while it also can affect the foreign exchange market via the portfolio approach (Lee and Ahn, 2010). On the other hand, Lee (2007) and Granger et al. (2000) provide bi-directional interaction between exchange rates and stock prices in Korea. In addition, Pan et al. (2007) find out that the results are in line with the traditional approach during Asian crisis, while they agree with the portfolio approach before Asian crisis in Korea. Therefore, examining the detailed relationship between foreign exchange market and stock market in Korea is appropriate to study the interaction between two markets and moreover it is very important for investors and policy makers in Korea. …

The Sensex 30 is a benchmark index for India's largest companies, indicating the health of the stock market. Its movements are influenced by domestic economic conditions, corporate performance, and global trends. The INR/USD exchange rate, which represents the Indian rupee vs. the US dollar, is crucial for India's international trade and investment. A depreciating rupee benefits export-oriented companies but increases import costs, affecting market performance. Understanding this dynamic is essential for investors and policymakers. The fluctuating link between the INR/USD currency pair and SENSEX 30 stock index is examined in this study from 2014 to 2024, with an emphasis on how changes in the exchange rate affect stock market performance. As India continues to integrate into the global economy, the interaction between foreign investments and the Indian stock market has become increasingly relevant for understanding investor sentiment and economic stability. This study particularly examines how returns from the SENSEX 30, an index that monitors 30 of India's biggest and most traded firms, are impacted by changes in the INR/USD exchange rate. The research's main finding is that there is a strong positive correlation between the INR/USD exchange rate and the SENSEX 30 index, with a rise of 1 in the SENSEX 30 for every 0.90 increase in the exchange rate. This implies that the depreciation of the Indian currency (INR) in relation to the US Dollar (USD) may result in increased stock market returns, especially in industries that rely heavily on exports, as Indian goods become more competitive in international markets due to the weaker currency. On the other hand, persistent depreciation may also result in higher import prices and inflationary pressures, which might be detrimental to business profitability and the state of the economy as a whole. Given that currency changes may have an impact on their investment decisions, foreign institutional investors (FIIs) are essential to this dynamic.. Decreased international gains are eroded by a lower INR, which frequently leads to portfolio modifications and more market volatility. Exchange rate fluctuations and stock market performance are influenced by the participation of foreign institutional investors (FIIs) and the Reserve Bank of India's (RBI) monetary policy choices. For example, the RBI's changes to interest rates have an effect on investor mood and influence market movements. Global economic variables that affect the US stock market and exchange rate include geopolitical tensions, changes in the price of commodities, particularly oil, and US Federal Reserve policies. The study uses a variety of statistical techniques, including as trend analysis, a t-test, and correlation analysis, to assess the link between the performance of the SENSEX 30 and the INR/USD exchange rate during a ten-year period. The results of the t-test demonstrate that the difference between the mean values of the SENSEX 30 and the INR/USD exchange rate is statistically significant, with a t-statistic of 30.278 and very tiny p-values. The SENSEX 30 exhibits a significantly bigger variation than the INR/USD, suggesting that the stock market is more volatile than the currency rate. This result is in line with predictions because stock markets are often more erratic than exchange rates. As a result, the study emphasizes how much exchange rate fluctuations affect the Indian stock market. It is recommended that investors keep a careful eye on currency changes since they have the International Journal of Scientific Research in Engineering and Management (IJSREM) Volume: 08 Issue: 09 | Sept - 2024 SJIF Rating: 8.448 ISSN: 2582-3930 © 2024, IJSREM | www.ijsrem.com DOI: 10.55041/IJSREM37610 | Page 2 potential to impact business profitability and stock market performance, particularly in industries that depend on imports or exports. The results also emphasize how crucial it is to diversify portfolios and hedge against risk related to currencies in order to successfully manage the intricate relationships between monetary policy, market volatility, and global economic situations.

Despite the significance of the subprime crisis, there are few studies of its impact on the dynamics between stock markets and exchange rates in Eurozone countries. This study helps to remedy that shortage by analysing the dynamics between the stock market and exchange rates for the Spanish economy in the period 1999–2015 with sub-periods 1999–2007 and 2008–2015, both before and after the financial crisis. We analyse the Granger causality between the Spanish stock market and real effective exchange rates and EUR/USD, EUR/JPY, EUR/CNY and EUR/GBP bilateral rates, through the Toda and Yamamoto procedure. To check robustness and sign in the direction of causality we use impulse-response analysis. On the one hand, the results show that the relationships analysed are significant only in the crisis sub-period (2008–2015), in which bilateral exchange rates lead fluctuations in the stock market while the latter leads the real effective exchange rate. On the other hand, for bilateral exchange rates the directions that show the impulse-response analysis are consistent with those shown in the Granger-causality analysis and the sign coincides with the data on the merchandise trade balance with the countries in question.

Generally, the exchange rate and the stock market have been some of the most studied areas in finance. Furthermore, the nexus between the two assets has been reviewed in a significant number of studies, but with conflicting results. The flow oriented model posits a positive link between exchange rate and stock market (Dornbusch and Fischer, 1980), the portfolio based model assume a negative relationship between exchange rate and stock market, and the monetary model indicates a weaker or no link between the two assets (Branson and Henderson, 1985; Frankel, 1983).This article studies the nexus between exchange rates and stock markets in four countries in Central and Eastern Europe (Czech Republic, Hungary, Poland, and Romania) over the period from 1999 to 2016. In our opinion, our contribution to the literature is manifold. Firstly, even if the papers that analyse the correlation between exchange rates and stock markets are numerous (Lee et al., 2011; Lestano and Kuper, 2015; Caporale et al., 2014; Moore and Wang, 2014; Lin, 2012; Lee et al. 2014), surprisingly, to our knowledge, for Central and Eastern European countries there is a scarce literature in this area. Secondly, we document the time varying correlation in both normal period and crisis period, allowing us to investigate the differences. Thirdly, compared with other studies, we employ a DCC-MIDAS model that enables the extraction of short- and long-term correlation series. Generally, other DCC models estimate only a short-run component for the correlation. Therefore, solely by averaging the high-frequency component, we may obtain a low-frequency component. The DCC-MIDAS model obviates this disadvantage. Our findings are summarized as follows. Firstly, we find significant differences between the four countries. Secondly, we notice an increased variance in terms of time varying correlation between stock market and exchange rate. Therefore, we cannot identify a clear pattern for the correlation. Thirdly, during the most severe crisis episodes, we see an increased correlation, indicating some signs of contagion and lower portfolio diversification.

The study investigates the impact of COVID–19 on the stock market and exchange rate in Nigeria. To achieve this objective, the impulse response function of the Toda-Yamamoto model (TY Model), and the variance decomposition were applied to all-share index, exchange rate, oil prices and Covid-19 cases. The impulse response function reveals that all-share index and exchange rate respond negatively to COVID-19 shocks. More so, the forecast variance decomposition revealed that the impact of COVID-19 pandemic on stock market was minimal. In general, the study found evidence of poor performance in the stock market and depreciation of exchange rate due to fall in oil prices. The study recommends effective exchange rate management during periods of crisis, and the diversification of the economy to broaden export base to mitigate the effect of exchange rate changes on the stock market and other sectors of the economy.

The issue of inter-relation between stock returns and exchange rates has often been discussed by economists since they both play important roles in influencing the development of a country's economy. The specific objective of the study is to identify the Granger causality effect between the stock market and exchange rate volatility in the ASEAN 5 countries. In order to capture the interactions between stock market performance and exchange rate volatility, the multivariate vector autoregression (VAR) framework estimations were utilized. The results showed that there was a bi-directional causality or feedback interaction between stock market and exchange rate volatility in Malaysia and a unidirectional causality effect from stock market to exchange rate volatility in Thailand. However, the findings showed no causality between stock market and exchange rate volatility in Indonesia, the Philippines and Singapore. Based on the findings, the Malaysian government must be cautious in their implementation of equity market and exchange rate policies relatively to the other ASEAN 4 countries because such policies have impact on both markets in Malaysia.

In this study, we want to understand the correlation between the stock market and the exchange rate of Brazil. We use the Brazil stock market and exchange rate information, and the empirical results using wavelet analysis are as follows: 1. Brazil's stock price index and exchange rate have a significant linkage relationship, whether in the short-term (1-4 years) or long-term (4-8 years) There is a significant correlation period (correlation coefficient > 0.8).In the short-term, there is frequent linkage (the island block is small), and in the long-term (4-8 years), a large red area (the island block is large) appears, indicating a significant year-long correlation.In the long-term (4-8 years) financial crisis period, the correlation has a significant impact. 2. in the short-term (1-4 years) linkage relationship: the exchange rate and the stock price index are positively correlated (the two are different in leading and lagging) and often have complete covariance. 3. in the long-term (4-8 years) linkage relationship: Except for the negative correlation of the exchange rate leading the stock market from 2002 to the end of 2003, the other sample periods are all positive correlation, and the exchange rate rises (depreciates) and the stock market rises (falls).

The purposes of the research are to investigate the relationship between Thailand stock market and exchange rate and to investigate the effect of Thailand stock market (SET Index) and exchange rate on the exchange rate of selected ASEAN countries, namely Malaysia, Indonesia and Singapore. The estimation method is DCC GARCH (1,1) which allows for the conditional correlation structure to be time-varying. The daily data between 2000-2016 are used for the estimation. The results find that Thailand stock market and exchange rate have one way relationship from the stock market to the exchange rate which is based on the concept of Portfolio Balance Approach. When the return of stock price index increases, Baht will appreciate. The increase in return of stock price index by 1 percent will lead to Baht appreciation by 0.0089 percent to 0.0109 percent. Additionally; Thailand stock market and exchange rate affect Malaysian Ringgit. The highest value of dynamic conditional correlation is the correlation between Thai Baht and Malaysian Ringgit.

This study investigates the impact of hot money on stock and exchange rate markets and the returns and volatility spillover between the stock and exchange rate market in China by using the monthly data covering the period from July 2005 to June 2013. This paper also uses the quantile approach to determine whether the hot money influences the stock and exchange rate markets. The results first reveal the long-run equilibrium relationship that is exhibited between the stock and exchange rate market. Second, hot money has an impact on the stock market but has no effect on the exchange rate market, according to the VECM-BEKK model. Third, regarding the volatility spillover effects on the stock and exchange rate markets, there is a spillover effect on the Shanghai stock and exchange rate markets. Hot money has an impact on the stock and exchange rate markets. Finally, we apply the quantile regression to determine the impact of hot money on low quantiles of the exchange rate and high quantiles of the Shanghai and Shenzhen stock market.

The aim of this research is to analyze the relationship of causality between oil prices, stocks market, and exchange rates in Indonesia using VAR model. The data used in this study is time series data from January 2014 until December 2018 that was obtained from the relevant institutions. The variables use are oil prices (X1), stocks market (X2), and exchange rates (X3). The method used in this study is Vector Auto Reggression (VAR). The finding has shown that there are no causality relationship between the oil prices, stock markets, and exchanger rates. The finding also shown that there is only directional relationship between exchange rates with stocks market.

This study seeks to provide new evidence on the stock market and exchange rate relationship in Zimbabwe, a country that does not have its own sovereign currency. The bivariate vector autoregressive approach is used to establish the relationship between the stock market and exchange rates. The results show that no relationship exists between the stock market and the proxy exchange rate. The findings contradict the expectation that exchange rate movements would influence domestic stock market prices. This finding is especially interesting given the fact that Zimbabwe uses a basket of currencies for transacting purposes, albeit with the United States dollar as a major currency for reporting and stock market pricing purposes. The findings provide new evidence of a disconnect between the stock market and exchange rate movements. This has implications for international portfolio diversification and the use of foreign currency as an asset class in an economy using a multiple currency system.

PurposeThe purpose of this paper is to examine the long-run association and short-run causality among oil price, exchange rate and stock market in Norwegian context.Design/methodology/approachThis work uses auto regressive distributed lag (ARDL) bound co-integration test to examine the long-run association among international crude oil, exchange rate and Norwegian stock market. Further to test the causality, Toda–Yamamoto Granger causality test is used. Daily data ranging from 1 January, 2011 to 31 December, 2018 is used in this study.FindingsFindings of this study suggest the existence of long-run equilibrium relationship among oil price, exchange rate and Norwegian stock market when oil price is taken as dependent variable. Further, this study observes the bi-directional causality between Norwegian stock market and exchange rate and unidirectional causality between oil and Norwegian stock market (from oil to stock market).Originality/valueTo the best of the authors’ knowledge, this the first study in context of Norway to explore the long-run association and causal relationships among international crude oil price, exchange rate and stock market index. Particularly, association of exchange rate and stock market largely remains unexplored for Norwegian economy. Further, majority of studies conducted in Norwegian setup have considered the period up to year 2010 and association of these variables is found to be time varying. Finally, this study uses ARDL bound co-integration test and Toda–Yamamoto Granger causality test. These methodologies have been used in literature in context of other countries like India and Mexico but not yet applied to study the Norwegian case.

During the deepest financial crisis in mid 2007-2009, increasing volatility of Indonesian stock market index were captured. Increasing volatility of the series is a common event since the volatility of financial market around the globe is increasing likewise. Yet, whether it is a sign of volatility spillover or comovement still emerges as a mystery. This paper seeks to explain the causes of the increasing volatility in domestic currency and stock market. To investigates the hypothesis in tranquil and crisis periods, the observation period of January 2, 2003 to May 31, 2010 is splitted into two sub-periods with different levels of volatility. Using VAR-EGARCH on daily stock market index of Indonesia (IDX), S&P 500, and the bilateral exchange rate, we documented the existence of meteor shower and heatwaves in Indonesia stock market and exchange rate during crisis period. This finding implies that in crisis period, Indonesian stock market and exchange rate volatility were not only affected by market specific factors, but were also affected by volatility of the major stock market. We also captured asymmetric affects in the model which suggests that negative shock in the major stock market will increase the volatility of domestic stock market more than positive shock will. Keywords: volatility spillovers, comovement, contagion, VAR-EGARCH

In this research work, macro level analysis has been conducted to assess impact of foreign direct investment (FDI) capital inflow in Indian economy. This study is focused on causality relationship between FDI inflow, stock market performance and foreign exchange rate. This framework is used for policy implications of relationship between three variables. These macro-economic variables are linked with different policies. Causality tests performed on these variables are further used for policy implications. Impact of change in exchange rate on changes in FDI inflow is the least significant followed by impact of changes in FDI inflow on changes in sensitivity index of stock exchange (SENSEX). The third least significant relationship is observed between changes in FDI inflow on change in exchange rate. These relationships are implied to ‘Impossible Trinity’ framework to assess preference for monetary, fiscal and foreign exchange rate policies. It is observed that improving performance of stock market (SENSEX) should be on priority followed by exchange rate. These finding have implications on fiscal policy, monetary policy and exchange rate. The increase in return of stock market and favourable exchange rate will help in increasing FDI inflow in Indian economy. Stock market performance depends on daily transactions by investors and they are regulated only, not controlled. Supply of foreign currency in India is controlled by the Reserve Bank of India (RBI), who assesses the supply conditions of the market and attempts to manage exchange rate in favour of Indian economy. In other words, the exchange rate can be controlled by having control on supply of foreign currency in domestic market. Hence, there is possibility of having fixed exchange rate and target band of exchange rate.