Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Currency versus stocks

In India we are accustomed to see the rupee and the stock market moving in the same direction as both respond to foreign investment flows. In recent weeks, the pattern has changed as a weakening rupee has coincided with a rising stock market. Another country with the same pattern is Japan where some commentators have argued that the pattern makes sense if foreign investors are hedging the currency risk while buying stocks. This is an interesting idea with potential relevance to India – foreigners can be long the private sector (equities) and short the government (currency).

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One response to “Currency versus stocks

  1. Max May 28, 2013 at 5:40 pm

    The yen/stock correlation isn’t new. It’s because the yen is a low yield currency, so currency speculators are short the yen.

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