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Detrended Correlation Coefficients Between Exchange Rate (in Dollars) and Stock Markets in the World’s Largest Economies

1
VALORIZA—Research Center for Endogenous Resource Valorization, 7300-110 Portalegre, Portugal
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Instituto Politécnico de Portalegre, 7300-110 Portalegre, Portugal
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CEFAGE-UE, IIFA, Universidade de Évora, Largo dos Colegiais 2, 7000 Évora, Portugal
4
Instituto Federal da Bahia, R. Emídio dos Santos, s/n—Barbalho, Salvador—BA 40301-015, Brazil
5
Secretaria de Educação do Estado da Bahia, 3a Avenida Centro Administrativo da Bahia, 550—5a—Centro Administrativo da Bahia, Salvador—BA 41745-004, Brazil
*
Author to whom correspondence should be addressed.
Economies 2019, 7(1), 9; https://doi.org/10.3390/economies7010009
Received: 20 September 2018 / Revised: 27 December 2018 / Accepted: 9 January 2019 / Published: 1 February 2019
(This article belongs to the Special Issue Impact of Macroeconomic Indicators on Stock Market)
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PDF [2325 KB, uploaded 25 February 2019]
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Abstract

The purpose of this paper is to verify the long-range correlation between the stock markets of the largest economies in the world and the respective exchange rate with the USD. According to theory, a negative correlation is expected, meaning that an increase in the return of one of the assets will cause a decrease in the return of the other. Using detrended cross-correlation and detrended moving average cross-correlation analyses and the respective correlation coefficients, we analysed this possibility, analysing behaviour according to different time scales. Our main results showed that in European markets, the exchange rate does not have a significant effect. This significant effect just occurs in the case of the Indian stock market, while in the case of the Japanese one, the relationship is positive. Japanese authorities’ monetary policy could be the reason for this different result. View Full-Text
Keywords: detrended cross-correlation analysis; detrended moving average cross-correlation analysis; exchange rate; stock markets detrended cross-correlation analysis; detrended moving average cross-correlation analysis; exchange rate; stock markets
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Ferreira, P.; Silva, M.F.; Santana, I.S. Detrended Correlation Coefficients Between Exchange Rate (in Dollars) and Stock Markets in the World’s Largest Economies. Economies 2019, 7, 9.

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