earticle

영어

Most studies on the relation between stock prices and exchange rates have shown that there exists a positive correlation. But there are conflicting arguments which is a causal variable. This paper applies unit root and cointegration models to investigate the appropriate Granger relations between stock prices and exchange rates using data on the Korean financial market after the liberalization. This study uses 1,666 daily stock index of workdays from May 25, 1998 to May 14, 2005. The time periods of the analysis is divided into three periods according to the trends of exchange rates of Korean won/U.S dollar. This paper used such variables as KOSPI and Korean won/U.S dollar exchange rates to observe a relation between stock prices and exchange rates. The empirical results show that there exists causalities between stock prices and exchange rates. Throughout the whole period, the research finds out that stock prices do cause exchange rates movements, which contradicts the earlier findings about the Korean stock markets. In other words, the relation between stock prices and exchange rates in Korea supports the portfolio approach. This seems to be a result of the liberalization of the Korean financial markets.