| Summary: | 碩士 === 國立成功大學 === 財務金融研究所 === 97 === We study the interrelationship between capital flows, stock returns and exchange rates returns in G7 from 1998 to 2007. This article develop a simultaneous equations model and then use VAR framework to gain further insights into the dynamic interactions between these variables. We find several facts concerning the behavior of these variables in some countries. First, equity flows are positively correlated with current and lagged local stock returns. Second, equity flows are positively associated with exchange rate returns and negatively related with the U.S. interest rate relative to foreign interest rate. Third, exchange rate returns have strong evidences which are negatively correlated with foreign stock returns for most countries and positively correlated with the U.S. stock returns. Finally, the effects of shocks from stock returns, capital flows and exchange rate returns on the other two variables die out quickly.
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