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Return-volatility linkages in the international equity and currency markets

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Author Info

  • Francis, Bill B
  • Hasan, Iftekhar

    ()
    (Rensselaer Polytechnic Institute and Bank of Finland Research)

  • Hunter , Delroy M.

Abstract

This paper, which is motivated by the literature on international asset pricing and recent work on exchange rate determination, investigates dynamic relationshiops between major currency and equity markets. Using a multivariate GARCH framework, we examine conditional cross-autocorrelations between pairs of national equity markets and related exchange rates. This provides a parsimonious way of testing mean-volatility relationships in currency and equity markets and re-examining the robustness of relationships between equity markets, while controlling for exchange rate effects. We find that the relationship between currency and equity markets is bi-directional, significant, persistent, and independent of the relationship strictly between equity markets, and that it is better captured by the conditional second moments.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0209.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 9/2002.

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Length: 39 pages
Date of creation: 27 May 2002
Date of revision:
Handle: RePEc:hhs:bofrdp:2002_009

Contact details of provider:
Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Related research

Keywords: international asset pricing; exchange rate determination; equity markets; relationships between currency and equity markets;

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References

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Citations

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Cited by:
  1. Thomas Flavin, 2004. "The effect of the Euro on country versus industry portfolio diversification," Economics, Finance and Accounting Department Working Paper Series n1411004, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  2. Karlo Kauko, 2004. "Links between securities settlement systems: An oligopoly theoretic approach," Industrial Organization 0405003, EconWPA.
  3. Sinha, Pankaj & Sinha, Gyanesh, 2010. "Volatility Spillover in India, USA and Japan Investigation of Recession Effects," MPRA Paper 47190, University Library of Munich, Germany, revised 17 May 2013.
  4. Matti Keloharju & Markku Malkamäki & Kjell G. Nyborg & Kristian Rydqvist, 2004. "A descriptive analysis of the Finnish treasury bond market 1991–1999," Finance 0405017, EconWPA.
  5. Mikko Niskanen, 2004. "Lender of last resort and the moral hazard problem," Macroeconomics 0405016, EconWPA.
  6. Peik Granlund, 2004. "Bank exit legislation in US, EU and Japanese financial centres," Finance 0405015, EconWPA.
  7. Elena Andreou & Maria Matsi & Andreas Savvides, 2013. "Stock and Foreign Exchange Market Linkages in Emerging Economies," University of Cyprus Working Papers in Economics 01-2013, University of Cyprus Department of Economics.
  8. Maher Asal, 2011. "The Impact of Euro on Sectoral Equity Returns and Portfolio Risk," International Advances in Economic Research, Springer, vol. 17(2), pages 119-133, May.

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