Stock Prices and Exchange Rate Relationship Puzzle: A Case of Asian Markets.

This study utilized the OLS and Quantile regression approach to investigate the relationship between stock prices and exchange rate. Monthly data of exchange rate and stock market of Pakistan, China, Russia and Turkey from March, 2003 to July, 2017 have been used. For data of stock market major stock indices are used and currency exchange rate of country with respect to US dollar are used. The paper checked the stationarity of the series through ADF test as well as PP test and Engle & Granger to check the long run relationship. It is observed that none of the country exhibit long run equilibrium between exchange rate and stock prices. Results are same under two different methods of ordinary least square and Quantile regression. Both models show that coefficient of China is negative, which support the presence of portfolio balance effect in China. Results demonstrate that stock prices (SP) and exchange rate (EX) have asymmetric relationship as coefficients vary under different quantiles. [ABSTRACT FROM AUTHOR]