Abstract:

There are two different and contrary models to determine the relationship between exchange rates and stock prices. The first model, “Flow-Oriented”, states that the currency or exchange rate changes affect the competitiveness of a company, which in turn affect the company's revenue or cost of funds and the subsequent impact on the company's stock price, while according to the second model, ”Stock-oriented”, which emphasizes the role of capital account transactions stated that the increase in stock return (rising stock market) will attract capital flows which in turn will increase the demand for domestic currency and cause the appreciation of exchange rate. This study was conducted to test both theories using cointegration relationships and methods of causal relationship between exchange rates and stock prices in Asia. The objects of this research are Indonesia, Singapore, Taiwan, Malaysia, China, South Korea, Japan, Hong Kong, Thailand, and India in January 2009 - December 2013 period. The data that used are secondary data from the monthly data from foreign exchange market (exchange rate) and capital markets (stock index) obtained from the publication of the foreign exchange market and the stock market through the website. Methods of data analysis consists of several stages of the data, there are stationary test, the degree of integration test, the determination of lag length, Johansen cointegration test, Granger causality test, and Vector Error Correction Model (VECM). All stages of data analysis were analyzed using the software E-views 7. From the analysis of the data, it was found that there is a cointegration relationship (long-term balance) between the exchange rate and stock prices in Asia. This indicates that between Exchange Rate and Stock Prices in Asia have a stability relationships or balance and equality movement in the long run. The second finding is that there is a causal relationship (causal) in both directions between the exchange rate and stock prices in Asia, both short term and long term. This indicates that the volatility that occurred in the exchange rate will cause volatility in stock prices.

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