["Australian Economic Papers, Volume 65, Issue 1, Page 30-48, March 2026. ", "\nABSTRACT\nThe present paper empirically examines the effects of exchange rate movements in Hong Kong's stock market using both linear ARDL and nonlinear NARDL models. Using quarterly data between 2005 and 2024 for 10 sector‐specific industries, our findings reveal significant and asymmetric effects of currency appreciation and depreciation across various industries. Sectors such as finance, healthcare, consumption, and energy exhibit high sensitivity to exchange rate movements, influenced by trade exposure and macroeconomic conditions. The study underscores the necessity of nonlinear models to capture the complex interactions between exchange rates and equity markets. Additionally, macroeconomic variables play crucial roles in determining stock market performance, highlighting the multifaceted nature of financial market behavior in an open economy like Hong Kong. These insights extend the empirical literature and offer practical guidance for investors and policymakers, emphasizing the need for sector‐specific risk management strategies, targeted policy support, and enhanced macroeconomic coordination to mitigate the adverse effects of currency volatility and bolster Hong Kong's financial system against global economic shifts.\n"]