How does the stock market respond to sudden changes in foreign exchange rates?
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The stock market responds to sudden changes in foreign exchange rates by experiencing fluctuations in stock prices and returns. These fluctuations are influenced by factors such as exchange rate volatility and oil prices. Studies have shown that negative shocks to the exchange rate can significantly diminish stock returns in some countries, while positive shocks can lead to declines in returns in other countries . The long-term relationship between exchange rate fluctuations and stock market performance has been established in some countries, such as Indonesia . The response of the stock market to changes in exchange rate regimes is not consistent, with significant correlations observed during periods of capital controls . Additionally, there is a bidirectional causal relationship between the stock market index and the exchange rate in some countries, such as South Africa . Overall, the stock market is influenced by sudden changes in foreign exchange rates, with the extent of the impact varying across countries and exchange rate regimes.
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| Papers (4) | Insight |
|---|---|
Open access•Dissertation 01 Jan 2011 7 Citations | The paper states that the stock market index in South Africa responds to changes in exchange rate regimes, but the response is slightly stronger during the period of the free floating exchange rate. However, the correlation coefficients were insignificant in both fixed and flexible exchange rate regimes. |
| The paper examines the response of the Johannesburg Stock Exchange to changes in exchange rate regimes, but it does not specifically address how the stock market responds to sudden changes in foreign exchange rates. | |
| The paper provides empirical evidence that a 1 percent negative shock to the exchange rate significantly diminishes stock returns in Egypt and Nigeria, while it increases stock returns in Tunisia, Morocco, and Tanzania. However, the paper does not specifically address how the stock market responds to sudden changes in foreign exchange rates. | |
3 Citations | The paper states that the stock market is influenced by exchange rate volatility, suggesting that sudden changes in foreign exchange rates may have an impact on stock market performance. |
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