DYNAMIC RELATIONSHIP BETWEEN EXCHANGE RATES AND STOCK PRICES IN ASIA, 2009-2013

There are two different and contrary models to determine the relationship between exchange rates and stock prices . The first model , “Flow - Oriented”, states that the currency or exchange rate changes affect the competitiveness of a company , which in turn affect the company's revenue or cost of funds and the subsequent impact on the company's stock price , while according to the second model , ” Stock - oriented”, which emphasizes the role of capital account transactions stated that the increase in stock return ( rising stock market) will attract capital flows which in turn will increase the demand for domestic currency and cause the appreciation of exchange rate . This study was conducted to test both theories using cointegration relationships and methods of causal relationship between exchange rates and stock prices in Asia . The objects of this research are Indonesia , Singapore , Taiwan , Malaysia , China , South Korea , Japan , Hong Kong , Thailand , and India in January 2009 - December 2013 period. The data that used are secondary data from the monthly data from foreign exchange market (exchange rate ) and capital markets ( stock index) obtained from the publication of the foreign exchange market and the stock market through the website . Methods of data analysis consists of several stages of the data, there are stationary test , the degree of integration test , the determination of lag length , Johansen cointegration test , Granger causality test , and Vector Error Correction Model ( VECM). All stages of data analysis were analyzed using the software E - views 7 . From the analysis of the data, it was found that there is a cointegration relationship ( long-term balance) between the exchange rate and stock prices in Asia . This indicates that between Exchange Rate and Stock Prices in Asia have a stability relationships or balance and equality movement in the long run . The second finding is that there is a causal relationship ( causal) in both directions between the exchange rate and stock prices in Asia , both short term and long term . This indicates that the volatility that occurred in the exchange rate will cause volatility in stock prices .