Investigating Symmetrical and Asymmetrical Effects of Exchange Rate and Its Fluctuations on the Return of the Pharmaceutical Industry Stock Using Linear and Nonlinear ARDL Models

The exchange rate, as a fundamental variable, alongside other economic variables, has a significant impact on stock returns. Therefore, this study has investigated the effects of the exchange rate and its fluctuations on the pharmaceutical industry's stock returns through linear and nonlinear models during the years 2005 to 2021. In this research, first, the exchange rate fluctuations were modeled using the GARCH model. Then, the symmetrical and asymmetrical effects of the exchange rate and its fluctuations, along with the macroeconomic control variables including the healthcare consumer price index, oil price, and industry-specific control variables including asset return ratio, asset turnover ratio, and debt ratio as well as the COVID-19 dummy variable, were investigated on the return of the pharmaceutical industry stock using both linear ARDL and nonlinear NARDL models. The study shows that in both the short and long term, the impact of the exchange rate on pharmaceutical industry stock returns is greater than the impact of exchange rate fluctuations. Additionally, negative shocks of the exchange rate and its fluctuations have a negative relationship with the pharmaceutical industry's stock returns, while positive shocks of the exchange rate and its fluctuations have a positive effect on the pharmaceutical industry's stock return. The study's findings suggest that the impact of positive and negative shocks of the exchange rate and its fluctuations have asymmetric effects on the return of pharmaceutical industry stock. Results show that control variables and COVID-19 have significant effects on pharmaceutical industry stock returns in linear and nonlinear models.