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Assessing Euro crises from a time varying international CAPM approach

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  • Baillie, Richard T.
  • Cho, Dooyeon

Abstract

This paper initially reviews the current empirical literature on the euro exchange rate. We consider the relationship between the euro and other floating currencies in terms of excess returns on bond markets and also the relationship between the euro–dollar and the US and European equity markets. One novelty in the paper is to consider the variation in the euro–dollar rate from an international capital asset pricing model (CAPM) perspective. The second new innovation is to use a kernel weighted time varying parameter regression approach which allows structural parameters and risk premium terms to evolve over time. We find evidence that the euro–dollar rate is substantially influenced by equity markets in the US and in the Eurozone.

Suggested Citation

  • Baillie, Richard T. & Cho, Dooyeon, 2016. "Assessing Euro crises from a time varying international CAPM approach," Journal of Empirical Finance, Elsevier, vol. 39(PB), pages 197-208.
    • Handle: RePEc:eee:empfin:v:39:y:2016:i:pb:p:197-208
    DOI: 10.1016/j.jempfin.2016.03.005
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    Cited by:

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    More about this item

    Keywords

    Euro–US dollar exchange rate; International CAPM with factors; Kernel weighted time-varying parameter regression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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