Japanese Yen and the S&P 500 Stock Index Linkage: Evidence in the Spot and Futures Markets

摘要

Motivated by the recent hedge funds debacle, this study investigates the existence of a 'long-run' (equilibrium) relationship between the foreign currency market and the stock market by utilizing the theory of cointegration. The empirical evidence suggests that it appears there is an equilibrium relationship between the currency market and the stock market during the time period investigated. The appropriate error correction model is estimated and is used to perform out-of-sample forecasting.