Exchange rate movements and stock market returns in Southeast Asia: Evidence of asymmetric exposure from nominal and real measures

Abstract

This study examines whether exchange rate risk is priced in stock market returns in partially segmented Southeast Asian economies and whether this exposure is asymmetric. Using monthly data from January 2010 to December 2024 for Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, the study constructs a market-level panel of domestic equity index returns, nominal bilateral U.S. dollar exchange rate changes, real bilateral exchange rate changes adjusted for inflation, and global equity returns proxied by the MSCI ACWI. The standard exchange rate exposure regression is extended by estimating nominal and real exchange rate effects separately and by allowing depreciation and appreciation regimes to differ. After panel specification and diagnostic tests, the models are estimated using generalized least squares and the difference generalized method of moments. The results show that both nominal and real exchange rate changes are significantly priced in Southeast Asian stock returns. Local currency depreciation is associated with lower market returns, while the interaction terms confirm asymmetric exposure, indicating that the magnitude of the effect differs across exchange rate regimes. This study contributes to the existing literature by documenting asymmetric nominal and real exchange rate exposure in six Southeast Asian stock markets, showing that local currency depreciation lowers market returns while managed exchange rate regimes do not fully eliminate equity-market currency risk. These findings support deeper local-currency bond markets, foreign exchange derivatives, and regional financial cooperation to improve hedging capacity and market resilience.