Impact of foreign exchange rate on stock returns Dissertation

Impact of foreign exchange rate on stock returns - Dissertation Example Table 1 reports the results of Augmented Dickey Fuller test of unit root for the stock indices and exchange rates of both the UK and Pakistan. The test has further been applied at different levels as well as in the first difference form. The findings will be reported in terms of each country starting with the UK first then Pakistan. Both the ADF and regression results will be presented for the country indices and then for each of the companies. This chapter is divided into several parts with the main parts comprising study findings for the UK (both ADF test and regression), study findings from Pakistan (ADF and regression), and finally the analysis section where these findings are discussed and analyzed. 5.2 Findings (UK) Augmented Dickey Fuller (ADF) Test Table 1 below presents ADF results for UK companies and GBP/USD rate. As is evident in the table, the results include the FTSE 100 index and ten major companies operating in the UK. Table 2 provides the findings of the ADF test for the national exchange rate (EX) of the GBP against the GBP. Table 1: Augmented Dickey Fuller test (UK companies and FTSE 100 Index) Augmented Dickey fuller (ADF) test (UK companies and FTSE 100 Index) Index + companies S= Index value/ stock price Critical values of 1%, 5%, 10% at Level ?S= 1st difference Critical values at 1%, 5%, 10% for ?S FTSE 100 -2.250374 -3.486064 -2.885863 -2.579818 -10.25769 -2.584707 -1.943563 -1.614927 Antofagasta -3.066955 -4.036983 -3.448021 -3.149135 -12.97182 -2.584707 -1.943563 -1.614927 Babdock -1.747700 -4.036983 -3.448021 -3.149135 -10.71888 -3.486551 -2.886074 -2.579931 HSBC Holdings -2.867695 -3.486064 -2.885863 -2.579818 -10.42942 -2.584707 -1.943563 -1.614927 Imperial tobacco -2.160689 -4.036983 -3.448021 -3.149135 -11.17921 -2.584707 -1.943563 -1.614927 Johnson matthey -2.543982 -4.036983 -3.448021 -3.149135 -10.41562 -2.584707 -1.943563 -1.614927 Meggit 0.828451 -2.584539 -1.943540 -1.614941 -11.56089 -2.584707 -1.943563 -1.614927 Morrison - 2.901854 -4.036983 -3.448021 -3.149135 -11.50647 -2.584707 -1.943563 -1.614927 Pearson plc -1.841245 -4.036983 -3.448021 -3.149135 -12.55195 -3.486551 -2.886074 -2.579931 Standard chartered bank -1.868623 -3.486064 -2.885863 -2.579818 -10.62130 -2.584707 -1.943563 -1.614927 Weir group -1.782673 -4.036983 -3.448021 -3.149135 -9.851895 -2.584707 -1.943563 -1.614927 Table 2: Augmented Dickey fuller (ADF) test (GBP/USD) Augmented Dickey fuller (ADF) test (GBP/USD) Currency X= Exchange rate Critical values of 1%, 5%, 10% at Level ?X= 1st difference Critical values at 1%, 5%, 10% for ?X GBP/USD -2.046301 -4.036983 -3.448021 -3.149135 -9.755815 -2.584707 -1.943563 -1.614927 According to the findings of the study, the ADF test results for the FTSE 100 index show that FTSE statistic value does not exceed the critical values at the 1%, 5%, and 10% critical levels. Therefore, the null hypothesis of the unit root for the index