The dynamic relationship between ASEAN+6 exchange rates and stock markets: application of the ARDL model

Abstract

Purpose: This study investigates the short- and long-run relationship between stock prices and exchange rates in the Association of Southeast Asian Nations (ASEAN)+6 markets. In the short run, support is found for both the theory of a goods market where exchange rates influence stock returns and portfolio balance theory, where stock returns influence exchange rates. Design/methodology/approach: The co-integration approach of linear and nonlinear augmented autoregressive distributed lag (ARDL) models was applied to daily data from 2 January 2017 to 30 June 2023. Findings: The findings provide evidence that the goods market theory is supported solely in Indonesia and Singapore, while the portfolio balance theory is supported for Australia, China, India and Malaysia. Practical implications: Policymakers and investors should seriously consider the importance of the study findings. The results show that all ASEAN+6 countries experience a short-term interaction between the two markets. This illustrates that exchange rates and stock price movements play vital roles in other markets. Stakeholders, particularly policymakers, should be aware of this critical relationship. Originality/value: This is the first study to dynamically examine how the ASEAN+6 framework influences currency rates and stock markets.