Alvard Kharatyan, Anoush Margaryan

THE EFFECT OF THE EXCHANGE RATE ON THE SECURITY MARKET AS AN EXAMPLE OF THE MEMBER COUNTRIES OF THE EUROPEAN UNION
https://doi.org /10.59982/18294359-24.2-aa-03

Abstract
The paper examines the stock markets of six European Union member countries. Two hypotheses have been put forward. 1.“Devaluation of the national currency contributes to the increase in stock prices” and 2. “The relationship between world gold prices and stock prices is reversed”. Using quarterly data from 1994 to 2023, and employing multivariate regression and panel data models, the study estimated the impact of exchange rates, global gold and silver prices, inflation, and GDP on the stock prices of EU countries. According to the results of the regression models, the depreciation of the national currency in the stock markets of France, Germany and Switzerland leads to an increase in stock prices, and in the stock markets of Italy, Spain and the United Kingdom, stock prices fall. Inflation has a significant negative effect on the stock market, while GDP growth has positive effect.
Among the analyses performed with panel data, the estimations of the Random Effect model were considered preferable, which gave the following results: the devaluation of the national currency has a significant negative impact on the prices of securities of EU countries. There is a significant inverse relationship between gold prices and stock prices, while the silver price-stock price relationship is positive. An increase in real GDP leads to an increase in stock market prices. According to the results of the model, inflation does not have a statistically significant effect on stock prices.
Keywords: European Union, stock market, exchange rate, regression model, Random Effect model.

PAGES: 37-50

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