Impact of Exchange Rates on Swedish Stock Performances.: Empirical study on USD and EUR exchange rates on the Swedish stock market.
Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
This paper examines the impact of USD and EUR exchange rates on the Swedish stock market performance for different economic sectors over a time period of ten years (2003-2013). The growing integration between foreign exchange markets and stock markets with the wide spread use of hedging and diversification policies made it necessary to test the degree of impact these two distinct markets share between each other. Number of studies, were done studying the relationship between the exchange rates and stock performance combining and comparing different economies and currencies. Nevertheless, research gap prevailed when it came at the point of the studying the relationship on Swedish stock and foreign exchange market. The research was conducted with the quantitative method. Initially we have tested how the performance of Swedish stock market is correlated with the return of the USD and EUR in different economic sectors over different time periods. Later, we try to investigate if there is any spillover effect flows from the exchange market to the Swedish stock market. The Pearson’s correlation coefficient and GARCH (1,1) model were applied to study the correlation and spillover effect between the exchange and stock return respectively. Our empirical study showed that there is very low correlation which is statistically insignificant between the two different markets. Correlations were found to be significantly varied across the different economic sectors in different time periods. Moreover empirical study supported that the spillover effect exists and showed that movement of exchange rates will affect the future performance of stock market. The significant conclusions were that USD and EUR can be used as portfolio diversification and during the volatile exchange market, investors should diversify or hedge their risk domestically and vice versa. The implications of this finding is particularly very important for the portfolio managers when devising their hedging policies and diversifying their portfolios in order to minimize their unsystematic risk.
Place, publisher, year, edition, pages
2013. , 101 p.
Exchange rates, stock performance, Sweden, correlation, volatility spillover, diversification, hedging, GARCH (1, 1).
Economics and Business
IdentifiersURN: urn:nbn:se:umu:diva-75782OAI: oai:DiVA.org:umu-75782DiVA: diva2:635634
International Business Program
UppsokSocial and Behavioural Science, Law