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The volatility of exchange rates and the non-normality of stock returns

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  • Blau, Benjamin M.

Abstract

In this study, we examine how exchange rate volatility in a particular country influences both the kurtosis and skewness of stock returns. In a variety of tests that hold constant the structure of the financial market, we show that exchange rate volatility is associated with greater kurtosis, and more negative skewness. We use the out-of-sample implementation of the Euro as an identification strategy in order to make stronger causal inferences. The implementation of the Euro created stability in exchange rates not only in the Euro Region but also in other parts of the world. We find some evidence that the adoption of the Euro decreased the level of kurtosis and increased the skewness of stock returns.

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  • Blau, Benjamin M., 2017. "The volatility of exchange rates and the non-normality of stock returns," Journal of Economics and Business, Elsevier, vol. 91(C), pages 41-52.
    • Handle: RePEc:eee:jebusi:v:91:y:2017:i:c:p:41-52
    DOI: 10.1016/j.jeconbus.2017.03.002
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    Cited by:

    1. Renan O. Regis & Raydonal Ospina & Wilton Bernardino & Francisco Cribari-Neto, 2023. "Asset pricing in the Brazilian financial market: five-factor GAMLSS modeling," Empirical Economics, Springer, vol. 64(5), pages 2373-2409, May.
    2. Jaratin Lily & Imbarine Bujang & Abdul Aziz Karia & Mori Kogid, 2018. "Exchange rate exposure revisited in Malaysia: a tale of two measures," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(4), pages 409-435, December.

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