Investing Strategies as a Sharp Movement in Exchange Rates Occurred: Evidence for the Constituent Stocks of SSE 50 and TW 50

Abstract

The authors argue that a sharp movement in exchange rates may result in stock market fluctuation due to the stimulation of investors’ sentiments. By using the constituent stocks of the SSE 50 and TW 50, they reveal that share prices would either drop substantially as a sharp depreciation occurred or increase considerably as a sharp appreciation in Chinese yuan (CNY) took place. These results are far different from the moves of share prices seen with sharp movements in New Taiwan dollars (TWD), which appear to react only slightly, as compared with the case for the CNY. These findings could be useful for investors in trading these constituent stocks during periods of dramatic currency movements.

TOPICS: Currency, security analysis and valuation, emerging, performance measurement