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Return-volatility linkages in the international equity and currency markets

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Author Info
Bill B. Francis (University of South Florida - College of Business Administration)
Iftekhar Hasan (Rensselaer Polytechnic Institute - Accounting, Finance & Economics)
Delroy M. Hunter (University of South Florida - College of Business Administration)

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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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Paper provided by EconWPA in its series Finance with number 0405022.

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Date of creation: 18 May 2004
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Handle: RePEc:wpa:wuwpfi:0405022

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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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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F31 - International Economics - - International Finance - - - Foreign Exchange

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(1), pages 5-33. [Downloadable!] (restricted)
    Other versions:
  3. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October. [Downloadable!] (restricted)
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  4. Martin D. D. Evans & Richard K. Lyons, 2002. "Order Flow and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 170-180, February. [Downloadable!] (restricted)
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  5. Alan G. Ahearne & William L. Griever & Francis E. Warnock, 2000. "Information costs and home bias: an analysis of U.S. holdings of foreign equities," International Finance Discussion Papers 691, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  6. Dumas, Bernard & Solnik, Bruno, 1995. " The World Price of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 50(2), pages 445-79, June. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kauko, Karlo, 2002. "Links between securities settlement systems: An oligopoly theoretic approach," Research Discussion Papers 27/2002, Bank of Finland. [Downloadable!]
  2. 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. [Downloadable!]
    Other versions:
  3. Granlund , Peik, 2002. "Bank exit legislation in US, EU and Japanese financial centres," Research Discussion Papers 25/2002, Bank of Finland. [Downloadable!]
  4. Peik Granlund, 2004. "Bank exit legislation in US, EU and Japanese financial centres," Finance 0405015, EconWPA. [Downloadable!]
  5. Mikko Niskanen, 2004. "Lender of last resort and the moral hazard problem," Macroeconomics 0405016, EconWPA. [Downloadable!]
  6. Matti Keloharju & Markku Malkamäki & Kjell G. Nyborg & Kristian Rydqvist, 2004. "A descriptive analysis of the Finnish treasury bond market 1991–1999," Finance 0405017, EconWPA. [Downloadable!]
    Other versions:
  7. Karlo Kauko, 2004. "Links between securities settlement systems: An oligopoly theoretic approach," Industrial Organization 0405003, EconWPA. [Downloadable!]
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