Can Fluctuations in Exchange Rates Predict Changes in the Norwegian Stock Market?

Abstract

This thesis examines the relationship between the OBX Index and NOK/EUR exchange rate, exploring both the short-term dynamics and long-term relationships between these variables. With a dataset including these two main variables and four other control variables from the period of 2000 to 2022, the research employs a comprehensive methodology, including a VAR model where we implement different tests such as a Granger causality test, cointegration analysis, and an impulse response function.

In the short-term analysis, the results reveal bidirectional causal relationships between the stock market and the exchange rate. Turning to the long run, the analysis provides robust evidence of a significant relationship between the variables, implying a long-term trend between the stock market and the exchange rate. The findings highlight the interplay between short- and long-term relationship, which contributes to a comprehensive understanding of the relationship between the Norwegian stock market and the NOK/EUR exchange rate.