The Dynamic Relationship between the Exchange Rate of the Yen/USDand the Stock Prices in the Financial Market of United States

The Dynamic Relationship between the Exchange Rate of theYen/USD and the StockPrices in the Financial Market of United StatesBy Jishu ZongThis paper studies the relationship between U.S. stock prices andthe exchange rate of theJapanese Yen to the U.S. Dollar. The motivation is to establish thecausal relation between theperformance of the U.S. stock market and the value of the Yen/USDin the foreign exchangemarket. Time series techniques include, the ADF test, theCointegration test and the Vector ErrorCorrection Model, are applied using the daily data from January 1,2003 to January 1, 2006. Theempirical results suggest a long run relationship between changesin U.S. stock prices on theprevious trading day and the current exchange rate of theYen/USD.This leads to the conclusionthat U.S. stock prices hold a predictive power over the exchangerate of Yen/USD.