Some Evidence on Exchange Rate Fluctuations and

We study the impact of exchange rate fluctuations and exchange rate regime shifts on Asian stock prices from 1873 to the eve of the Second World War. The seven small open economies in the sample are particularly interesting as they are comparable to modern emerging markets and because they abandoned a common currency, silver, at differing times. Some significant associations between stock returns, exchange rate changes, and silver-related legislative and regulatory events are consistent with an “export competitiveness ” interpretation, and silver also appears to have been both a conditioning variable and a priced risk factor in the global risk-return equilibrium. Overall, however, silver shocks explain only a small fraction of stock returns. When combined with low correlation between the seven markets, the evidence suggests that local factors, home bias, or purchasing power hedging, rather than common factors, were predominant determinants of stock returns during this era. This echo...