RELATIONSHIP BETWEEN THE STOCK PRICES AND THE EXCHANGE RATES IN BRICS COUNTRIES: THRESHOLD COINTEGRATION AND THRESHOLD GRANGER CAUSALITY

Abstract

Author(s): Mehmet Sinan TEMURLENK*, Anil LGN**

The aim of the study is to examine the relationship between stock markets and exchange rates for BRICS. In this context, the period 2003:01 – 2019:03 has been analyzed. In this study, the existence of long-term relationship with different cointegration approaches has been investigated. In addition, the relationship between stock market indices and exchange rates of countries in the short and long terms has been analyzed. For this purpose, Enders and Siklos (2001) approach is applied. The existence of a cointegration relationship between the stock market and the exchange rate in BRICS is researched by utilizing TAR and MTAR models. According to the results, the error correction model in which the dependent variable is the stock market is valid for all countries. The cointegration results show that there is a long-term relationship between the stock market indices and exchange rates of BRICS countries. The finding of causality in the short term is not found for Brazil but in the long term, there is a causal relationship between the stock market index and exchange rate ratios in different directions.

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