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| Author: | Malliaropulos, D. |
| Title: | International stock return differentials and real exchange rate changes. |
| Journal: | Journal of International Money and Finance
1998 : JUN, VOL. 17:3, p. 493-511 |
| Index terms: | STOCK EXCHANGES SHARE PRICES OECD USA |
| Language: | eng |
| Abstract: | The author investigates the link between international stock return differentials relative to the US and deviations from relative purchasing power parity. Assuming that the real exchange rate and the relative stock price between two countries contain both permanent and temporary components, he derives a relationsip between expected stock return differentials between the same two countries and expected changes in the real exchange rate in terms of observables. The predictions of the model are tested empirically using stock market indices of four major OECD countries relative to the US. The empirical results indicate that there is a negative relationship between stock return differentials against the US and changes in the real exchange rate. |
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