Abstract:

In order to determine whether there exist interdependence between stock prices and real exchange rates in the BRICS economics (Brazil, Russia, India, China and South Africa), this study examines the dynamic relationship between the two by utilizing monthly data from January 2000 to Jun 2016. However, the data for South Africa is taken from April 2004 to Jun 2016. For this aim, Unit root, Johansen co-integration, Vector Error Correction Model (VECM) and Granger Causality tests are concluded to analyses the data. The result indicates that all the series are integrated of order one, I (1) when they are differenced. India represented bidirectional causality and there is unidirectional relation running from exchange rate to stock price in case of Brazil but in the case of Russia and South Africa unidirectional causality moving from stock prices to exchange rate. However, no relationship between variables was determined in China. Further, from the VECM we find negative correlation between stock price and exchange rate in BRICS countries, but the correlation was not negative in in month 1 for Russia and India; and in month 1 and 2 for China. We additionally find that there is long term co-integration relationship between the Stock prices and real exchange rate in BRICS economics. Key Words: Stock Price, Exchange Rate & BRICS Countries.

Keywords: