Co-movements between Stock Markets and Exchange Rates: Empirical Evidence from the G20 Nations

This study investigates the relationship between stock markets and exchange rate markets in the short and long run for G20 countries by analyzing weekly stock market returns and exchange rates from January 2008 to March 2023. This study uses the CD test for testing cross-sectional dependence in all the panel series, and unit root tests are employed to verify the stationarity properties of variables. Based on the above results, the panel ARDL model and PMG estimator are used to establish the long-run and short-run cointegrating relation between the stock and exchange rate markets. We have found a stable positive relationship between the stock markets and the exchange rate of G20 countries in the long run, but a negative association was found in the short run. These findings highlight the intricate dynamics between stock markets and exchange rates and the interconnectedness of G20 nations. The robust positive long-term correlation and the short-term negative association exhibit the differential impacts of macroeconomic variables over varying time horizons