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Stock Prices and Exchange Rates in A ustralia: Are Commodity Prices the Missing Link?
Author(s) -
Groenewold Nicolaas,
Paterson James E.H.
Publication year - 2013
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12014
Subject(s) - commodity , economics , stock (firearms) , ambiguity , currency , exchange rate , monetary economics , stock exchange , financial economics , finance , mechanical engineering , linguistics , philosophy , engineering
There are still significant gaps in our knowledge of the relationship between stock prices and exchange rates; not least, the ambiguity about the sign of the coefficient linking them. One explanation which we explore in the A ustralian context in this paper is the omission of commodity prices. We show that a relationship which omits commodity prices performs poorly but, once commodity prices are added, our results are plausible and robust. We also throw light on the commodity‐currency issue: the link from the exchange rate to commodity prices is stronger and more consistent than that in the opposite direction.