International Business& Education Conferences Proceeding, London, England, 7 - 11 June 2015, pp.634-640
The relationship between exchange rates and stock prices catches investor’s attention for many years. The excessive volatility of stock prices will make the stock market become risky for investors. The investor who wants to make excess profit will sell his/her foreign assets and turn towards national assets. This will cause an increase in the value of national currency and a decrease in the exchange rate. Especially in the periods when the value of national currency is increasing and the exchange rate is decreasing, the investors will invest on exchange rate rather than buying stocks. It is obvious that there is an inverse relationship between exchange rates and stock prices. On developing markets, investors see the foreign exchange market as an alternative to stocks. Based on the inverse relationship between exchange rates and stock prices, it is necessary to know the factors effecting stock prices which make investors to turn towards exchange rates. For this purpose the efficient-market hypothesis is going to be examined in this paper.
Efficient Market Hypotehesis (EMH) proposes that markets contain all available information. If the EMH is valid, investors who participate in the market will not make above-normal profits. If efficiency can not be established, that is if the markets are not efficient, investors will have the opportunity to make above-normal profits.