Examining Relationship Between Stock Prices and Exchange Rate in Oil-exporting Countries

Purpose of this study is to examine the relationship between stock price and exchange rate by considering the oil price in oil-exporting countries. In order to examine the co-integration between variables, Pedroni and Kao tests are performed. In addition, FMOLS and DOLS tests are performed on monthly basis data to obtain long-run vector coefficients over 2009 – 2011 period. Furthermore, Short-run relationship between variables are examined by pooled mean group (PMG) test based on vector error correction model (VECM). I can be inferred from the results that there is co-integration between variables in the long-run. The long-run coefficients indicate a positive relationship between stock price and exchange rate and a negative relationship between oil price and exchange rate. Moreover, the results from PMG test demonstrate mutual causality between all the variables.