Openness and the exchange rate exposure of national stock markets - a note

This paper examines the relationship between the valuation of the stock market and an effective exchange rate. We use monthly data on 10 industrialized countries for the period 1973-1996. We find that the more open the economy, the stronger is the (positive) relationship between return on the stock market and the exchange rate. The pattern that we find is consistent with the well documented findings of less than full pass-through of exchange rates onto import prices.