The Dynamics of the Relationship Between Exchange Rates and the Thai Stock Market: Empirical Evidence from the SET50 Index Using the ARDL Model
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Abstract
This research examines the impact of exchange rates on the SET50 index level of the Stock Exchange of Thailand, using monthly data covering a 10-year period from January 2013 to December 2022. The analysis employs the Autoregressive Distributed Lag (ARDL) model, which is well-suited for macroeconomic time-series data characterized by volatility and external influences, and allows for the assessment of both short-run dynamics and long-run relationships within a unified framework. The empirical findings indicate that exchange rates do not exhibit a long-run relationship with the SET50 index level. Likewise, the control variables—interest rates and the consumer price index (CPI)—show no significant long-run effects. However, in the short run, changes in the exchange rate significantly affect fluctuations in the SET50 index, suggesting that the stock market responds sensitively to short-term movements in currency values. Based on these results, it is recommended that policymakers prioritize the management of short-term exchange-rate volatility, as it has a direct impact on the capital market. Maintaining the stability of the Thai baht can help reduce financial-market uncertainty, strengthen investor confidence, and support stable economic growth. Moreover, the absence of a long-run relationship implies that the Thai stock market—particularly the firms that constitute the SET50—is more responsive to short-term news and investor expectations rather than long-term fundamental factors. Therefore, enhancing the clarity, transparency, and timeliness of economic data dissemination and monetary-policy communication would help mitigate short-term volatility arising from uncertainty in the financial market.
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