Analysis of relationship and volatilities between foreign exchange market and stock market of Thailand and selected Asian countries

Abstract

     The purposes of the research are to investigate the relationship between Thailand stock market and exchange rate and to investigate the effect of Thailand stock market (SET Index) and exchange rate on the exchange rate of selected ASEAN countries, namely Malaysia, Indonesia and Singapore. The estimation method is DCC GARCH (1,1) which allows for the conditional correlation structure to be time-varying. The daily data between 2000-2016 are used for the estimation. The results find that Thailand stock market and exchange rate have one way relationship from the stock market to the exchange rate which is based on the concept of Portfolio Balance Approach. When the return of stock price index increases, Baht will appreciate. The increase in return of stock price index by 1 percent will lead to Baht appreciation by 0.0089 percent to 0.0109 percent. Additionally; Thailand stock market and exchange rate affect Malaysian Ringgit. The highest value of dynamic conditional correlation is the correlation between Thai Baht and Malaysian Ringgit.