Abstract. This study attempts to investigate the dynamic relationship between the stock prices and exchange rate in the top three Asian economies, namely China, India and Japan extended from January 2010 to December 2019. We apply bivariate Vector Autoregression (VAR), Granger Causality Test, Impulse Response Functions and Variance Decomposition to study the short-term association of stock and exchange rate returns. It is interesting to note that stock markets are more influencing than currency markets in all three countries. The results of this study will be helpful for market participants and policy makers to take more efficient and informed decisions.

Keywords: vector autoregression, stock index, exchange rate, causality, impulse response and variance decomposition.