On the Causal Relationship between Stock Prices and Exchange Rates : Evidence from MENA Region

This paper examines the causality between the exchange rates and stock prices in the Middle East and North Africa Region before and after Asian financial crisis. Applying a non-causality testing procedure developed by Toda and Yamamoto (1995), we empirically find that there is a unidirectional Granger causality from exchange rates to stock prices for Israel and Morocco before and after the Asian financial crisis, and for Jordan only after the crisis. However the causality runs from stock prices to exchange rates for Turkey after the Asian financial crisis. Moreover, we do not find any support for causal relationship between these two variables for Egypt. These findings have implications regarding the influence of exchange rates on the development of stock markets and the effect of financial crises on the relation between stock prices and exchange rates