ARTICLE

COMOVEMENT OF FOREX RATE AND SHARE PRICE OF PAKISTAN STOCK EXCHANGE AN APPLICATION OF COPULA MODELS

  1. HOME
  2. ARTICLE

08 Pages : 78-87

http://dx.doi.org/10.31703/ger.2020(V-III).08      10.31703/ger.2020(V-III).08      Published : Sep 2020

Co-Movement of Forex Rate and Share Price of Pakistan Stock Exchange - An Application of Copula Models

Abstract

    This paper examines the relationship between the forex rate and the share price of the Pakistan Stock Exchange. The study provides additional understating of the complex nature of the relationship among bi-variate time series using the Copula model. Copula models are best suited to find the co-movement of time series data integrating the possible latent structure of the relationship through estimation of joint distribution with the help of marginal distribution of each time series variable. Alike from the traditional time series analysis, Copula models are best suited to estimate the complex relationship, specifically the tail dependence structure of joint distribution of the variables. Results of the study highlight a significant two-sided tail dependence structure between the Forex rate and share price of the Pakistan Stock Exchange.

    Copula Model, Share Price, Forex rate, Joint Distribution

    (1) Muhammad Nouman Latif
    Department of Mathematics and Statistics, Pir Mehr Ali Shah Arid Agriculture University, Rawalpindi, Punjab, Pakistan.
    (2) Nasir Ali
    Department of Mathematics and Statistics, Pir Mehr Ali Shah Arid Agriculture University, Rawalpindi, Punjab, Pakistan.
    (3) Anjum Shahzad
    Department of Mathematics and Statistics, Pir Mehr Ali Shah Arid Agriculture University, Rawalpindi, Punjab, Pakistan.
Fulltext PDF

References

  • Abdalla, I. S., & Murinde, V. (1997). Exchange rate and stock price interactions in emerging financial markets: evidence on India, Korea, Pakistan and the Philippines. Applied financial economics, 7(1), 25-35.
  • Ahmad, M. I., Rehman, R., & Raoof, A. (2010). Do interest rate, exchange rate effect stock returns? A Pakistani perspective. International Research Journal of Finance and Economics, 50, 146-150.
  • Ali, I., Rehman, K. U., Yilmaz, A. K., Khan, M. A., & Afzal, H. (2010). Causal relationship between macro-economic indicators and stock exchange prices in Pakistan. African Journal of Business Management, 4(3), 312-319.
  • Faruqee, H. (1995). Long-run determinants of the real exchange rate: A stock-flow perspective. Staff Papers, 42(1), 80-107.
  • Ibrahim, M. H. (2000). Cointegration and Granger causality tests of stock price and exchange rate interactions in Malaysia. ASEAN Economic Bulletin, 36-47.
  • IGAnalyst. (2018, 01 November 2018). What is the relationship between exchange rates and stock prices? , from https://www.ig.com/au/trading-strategies/what-is-therelationship-between-exchange-rates-and-stock-prices181031
  • Jawaid, S. T., & Ul Haq, A. (2012). Effects of interest rate, exchange rate and their volatilities on stock prices: evidence from banking industry of Pakistan. Theoretical & Applied Economics, 19(8).
  • Kamal, Y., Ghani, U., & Khan, M. M. (2012). Modeling the exchange rate volatility, using generalized autoregressive conditionally heteroscedastic (GARCH) type models: Evidence from Pakistan. African Journal of Business Management, 6(8), 2830- 2838.
  • Kim, K.-h. (2003). Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model. Review of Financial economics, 12(3), 301-313.
  • Kurihara, Y. (2006). The relationship between exchange rate and stock prices during the quantitative easing policy in Japan. International Journal of Business, 11(4), 375.
  • Maziarz, M. (2015). A review of the Granger-causality fallacy. The journal of philosophical economics: Reflections on economic and social issues, 8(2), 86-105.
  • NIEHANS, J. (1976). EXCHANGE RATE DYNAMICS WITH STOCK-FLOW INTERACTION: JOHNS HOPKINS University Press.
  • Olugbenga, A. A. (2012). Exchange rate volatility and stock market behaviour: The Nigerian experience. European Journal of Business and Management, 4(5).
  • Poulin, A., Huard, D., Favre, A.-C., & Pugin, S. (2007). Importance of tail dependence in bivariate frequency analysis. Journal of Hydrologic Engineering, 12(4), 394-403.
  • Salvatore, D. (2016). International Economics: Wiley
  • Siami-Namini, S. (2017). Granger causality between exchange rate and stock price: A Toda Yamamoto approach. International Journal of Economics and Financial Issues, 7(4).
  • Suriani, S., Kumar, M. D., Jamil, F., & Muneer, S. (2015). Impact of exchange rate on stock market. International Journal of Economics and Financial Issues, 5(1S).
  • Yasir Riaz, W. M. K., Asad-ul-Islam Khan. (2020). The Index of Sustainable Economic Welfare for Pakistan. International Journal of Ecological Econoimcs and Statistics, 41(3), 81-96.
  • Zhao, H. (2010). Dynamic relationship between exchange rate and stock price: Evidence from China. Research in International Business and Finance, 24(2), 103-112.
  • Zhao, Z., Shi, P., & Zhang, Z. (2020). Modeling Multivariate Time Series with Copulalinked Univariate D-vines. Journal of Business & Economic Statistics, 1-39.
  • Zia, Q. Z., & Rahman, Z. (2011). The causality between stock market and foreign exchange market of Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 3(5), 906-919.

Cite this article

APA

    APA : Latif, M. N., Ali, N., & Shahzad, A. (2020). Co-Movement of Forex Rate and Share Price of Pakistan Stock Exchange - An Application of Copula Models. Global Economics Review, V(III), 78-87. https://doi.org/10.31703/ger.2020(V-III).08

CHICAGO

    CHICAGO : Latif, Muhammad Nouman, Nasir Ali, and Anjum Shahzad. 2020. "Co-Movement of Forex Rate and Share Price of Pakistan Stock Exchange - An Application of Copula Models." Global Economics Review, V (III): 78-87 doi: 10.31703/ger.2020(V-III).08

HARVARD

    HARVARD : LATIF, M. N., ALI, N. & SHAHZAD, A. 2020. Co-Movement of Forex Rate and Share Price of Pakistan Stock Exchange - An Application of Copula Models. Global Economics Review, V, 78-87.

MHRA

    MHRA : Latif, Muhammad Nouman, Nasir Ali, and Anjum Shahzad. 2020. "Co-Movement of Forex Rate and Share Price of Pakistan Stock Exchange - An Application of Copula Models." Global Economics Review, V: 78-87

MLA

    MLA : Latif, Muhammad Nouman, Nasir Ali, and Anjum Shahzad. "Co-Movement of Forex Rate and Share Price of Pakistan Stock Exchange - An Application of Copula Models." Global Economics Review, V.III (2020): 78-87 Print.

OXFORD

    OXFORD : Latif, Muhammad Nouman, Ali, Nasir, and Shahzad, Anjum (2020), "Co-Movement of Forex Rate and Share Price of Pakistan Stock Exchange - An Application of Copula Models", Global Economics Review, V (III), 78-87

TURABIAN

    TURABIAN : Latif, Muhammad Nouman, Nasir Ali, and Anjum Shahzad. "Co-Movement of Forex Rate and Share Price of Pakistan Stock Exchange - An Application of Copula Models." Global Economics Review V, no. III (2020): 78-87. https://doi.org/10.31703/ger.2020(V-III).08