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What Exactly is "Bad News" in Foreign Exchange Markets? Evidence from Latin American Markets

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Author Info
Cecilia Maya
Karoll Gómez
Abstract

This paper asks whether the ‘leverage effect’ –as defined by Black (1976) for stock markets– is also a characteristic of foreign exchange markets. The study focuses on five Latin American emerging markets which have adopted a floating exchange regime. It finds that the response of exchange rates to volatility shocks is characterized by long memory and symmetry in most countries. The response is asymmetric only in Brazil and Peru. A possible explanation for this asymmetry is the ‘fear of floating’ that induces side-effects on interest rates and inflation, which the market considers ‘bad news’. The opposite direction of the asymmetry may be explained by the particular characteristics of each economy.

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Publisher Info
Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Cuadernos de Economía.

Volume (Year): 45 (2008)
Issue (Month): 132 ()
Pages: 161-183
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ioe:cuadec:v:45:y:2008:i:132:p:161-183

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Related research
Keywords: Exchange Rate Volatility; Leverage Effect; Asymmetric Volatility; GARCH; HYAPARCH;

Find related papers by JEL classification:
C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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    Other versions:
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