EXCHANGE RATE AND STOCK MARKET INTERACTIONS: EVIDENCE FROM AN EMERGING ECONOMY

This study explores the causal link and its ramifications between the Greek stock market and two Greek exchange rates vis-à-vis the US. dollar and the German Mark. Preliminary statistical results how that the series are stationary in their first differences and that they are cointegrated. Hence, an error-correction model is appropriate for explaining the short- and long-term paths of adjustment to equilibrium simultaneously. The empirical results indicate that significant feedback relations between the dynamics of the stock market and each exchange rate exist. These findings have serious implications for Greece's stock market in light of its way of becoming more integrated with its European partners within the European Union.