Openness and the exchange rate exposure of national stock markets

The relationship between the valuation of the stock market and an effective exchange rate is examined. Monthly data on 11 industrialized countries, fo r the period 1973-1996, are used. It is found that the more open the econom y, the stronger is the (positive) relationship between return on the stock market and the exchange rate. The pattern that is found is consistent with the well-documented findings of less than full pass-through of exchange rat es into import prices. (C) 1999 John Wiley & Sons, Ltd.