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Time-Varying Currency Betas: Evidence from Developed and Emerging Markets

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  • Prabhath Jayasinghe

    (Department of Economics, National University of Singapore)

  • Albert K. Tsui

    ()
    (Department of Economics, National University of Singapore)

Abstract

This paper examines the conditional time-varying currency betas from five developed markets and four emerging markets. A trivariate BEKK-GARCH-in-mean model is used to estimate the timevarying conditional variance and covariance of returns of stock index, the world market portfolio and changes in bilateral exchange rate between the US dollar and the local currency of each country. It is found that currency betas are more volatile than those of the world market betas. Currency betas in emerging markets are more volatile than those in developed markets. Moreover, we find evidence of long-memory in currency betas. The usefulness of time-varying currency betas are illustrated by two applications.

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File URL: http://www.fas.nus.edu.sg/ecs/pub/wp-scape/0903.pdf
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Bibliographic Info

Paper provided by National University of Singapore, Department of Economics, SCAPE in its series SCAPE Policy Research Working Paper Series with number 0903.

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Length: 34 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:sca:scaewp:0903

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Web page: http://www.fas.nus.edu.sg/ecs/scape/index.html
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Keywords: time-varying currency betas; multivariate GARCH-M models; international CAPM; fractionally integrated processes; stochastic dominance;

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  1. Horst Entorf & Gösta Jamin, 2007. "German Exchange Rate Exposure at DAX and Aggregate Levels, International Trade and the Role of Exchange Rate Adjustment Costs," German Economic Review, Verein für Socialpolitik, vol. 8, pages 344-374, 08.
  2. Bodnar, Gordon M. & Gentry, William M., 1993. "Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 29-45, February.
  3. Brooks, Robert D, et al, 2000. " U.S. Banking Sector Risk in an Era of Regulatory Change: A Bivariate GARCH Approach," Review of Quantitative Finance and Accounting, Springer, vol. 14(1), pages 17-43, January.
  4. R. D. Brooks & R. W. Faff & M. McKenzie, 2002. "Time varying country risk: an assessment of alternative modelling techniques," The European Journal of Finance, Taylor & Francis Journals, vol. 8(3), pages 249-274.
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