Relationship between Foreign Exchange Rate and Stock Price of Commercial Banks in Romanian financial market
Relationship between Foreign Exchange Rate and Stock Price of Commercial Banks in Romanian financial market

Summary/Abstract: In the context of globalization and the financial crisis that the world traversed over theperiod 2007-2009, the Romanian capital market suffered extreme shocks (stock indicesrecording a decline of up to 90% while the national currency depreciated sharply againstEUR and USD), which led to a significant increase in volatility in the national financialmarket. Considering that the financial sector was the trigger of the crisis and one of themost affected sector, we chose to analyze whether we can talk about the foreign exchangerate impact on price of the bank shares traded on the Bucharest Stock Exchange and viceversa (during March 2008 - June 2017), using correlation and VAR Granger Causality test.Frequency of data is daily. We also studied the evolution of the correlation between thebanking sector (represented by the shares of the banking companies traded on the BucharestStock Exchange) and the foreign exchange market during and after the financial crisis.Next, we analyzed volatility changes in this sector in the post-crisis period compared to theone recorded during the financial crisis. We have included the three Romanian banks:BRD-Groupe Societe Generale, Banca Transilvania, Patria Bank and two foreign bankstraded on BSE: Erste Bank AG and Deutsche Bank and RON/EUR and RON/USDexchange rates.The results of the study showed that we can speak of a unidirectionalcausality running from the RON / EUR exchange rate to the prices of the Romanian banksincluded in the study (except for Patria Bank) and of a bidirectional causality for foreignbanks Erste Bank and Deutsche Bank. During the crisis (as could be expected), we noticedan increase in volatility and market correlation and a slight decline once the effects of thecrisis began to dissipate.

• Details
• Contents