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THE RELATIONSHIP BETWEEN EXCHANGE RATES AND STOCK PRICES: THE CASE OF MEXICO

Gopalan Kutty

Mansfield University, USA

ABSTRACT

This paper examines the relationship between stock prices and exchange rates in Mexico. The Granger causality test shows that stock prices lead exchange rates in the short run, and there is no long run relationship between these two variables. This finding corroborates the results of Bahmani-Oskooee and Sohrabianís (1992) conclusion, but contradicts the findings of other studies which reported a long term relationship between exchange rates and stock prices.

Keywords: Exchange rates; cointegration; stock prices

JEL: C52, F31