Predictability of Polish Zloty exchange rates against EURO on the basis of levels of macroeconomic fundamentals and national stock market behaviour

Malinowska, Martyna (2011) Predictability of Polish Zloty exchange rates against EURO on the basis of levels of macroeconomic fundamentals and national stock market behaviour. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

Investors have been looking for ways of predicting Foreign Exchange Market movements in order to hedge their positions in international trade or cash in a profit. The study focuses on the investigation of factors which can serve as a mean of predicting exchange rates of Polish currency against EURO in short and long time horizon between 1997-2011. After reviewing available literature, macroeconomic fundamentals such as inflation rate, interest rate and terms of trade have been selected for the analysis in the long time horizon. Daily capitalization of Polish national equity index- WIG, is implemented in the study of short time horizon. Predictive power of macroeconomic fundamentals and stock market was tested under different economic environment such as stage of capital market development, different exchange rate regime as well as strict and liberal monetary and fiscal policy of Polish National Bank and policymakers.

After closer look into levels of macroeconomic fundamentals such as budget deficit, public debt, international debt, interest rate, inflation rate and terms of trade. Year 2003 has been chosen as a threshold of the new economic environment in Poland. After splitting the data into two time series data between 1997-2003 and 2003-2011 with implementation of regression analysis, co-integration and causality tests (Engle and Granger 1987), relationships between macroeconomic indicators, equity market and FOREX were sought.

Only before 2003 equity index turned out to be a good indicator of future FOREX market behaviour. The outcome of the study of macroeconomic fundamentals for early time period indicated no relationships between them and Polish currency, but investigation of the later decade leaves a big question mark under validity of the model. The results for the analysis after year 2003 stand in contradiction with developed macroeconomic theories. Namely the negative and significant direction of the interactions between interest rates and currency strength as well as no impact of currency regime on the linkages between the variables call for reassessing it with more powerful models.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 25 Apr 2012 14:20
Last Modified: 28 Sep 2016 14:09
URI: http://eprints.nottingham.ac.uk/id/eprint/24951

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