Empirical Analysis of the Impact of Foreign Exchange Reserves on Sectoral Stock Returns - Evidence from the Korean Stock Market -

We empirically examine the influence of the foreign exchange reserves, exchange rate, industrial production index, inflation, trade openness, and foreign direct investment (FDI) on the sectoral stock indices using monthly data from 2011/01 to 2020/12. Among these factors, the impact of foreign exchange reserves on sectoral stock returns is the primary focus of our study. We use an autoregressive distributed lag model to investigate the short-run and long-run cointegration. The study’s overall conclusion underlines the importance of raising foreign exchange reserves sustainably, reducing the adverse effect of inflation and FDI in specific sectors to run the stock market efficiently.