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The Impact of the Exchange Rate Dynamics on the Dependencies in Global Stock Market

Author

Listed:
  • Malgorzata Doman

    (Poznan University of Economics)

  • Ryszard Doman

    (Adam Mickiewicz University in Poznan)

Abstract

The paper addresses the question of how the exchange rate dynamics affects the analysis of linkages between national stock markets. We consider two ways of tackling the problem. The first one consists in denominating the analyzed quotations in the same currency. The second deals with a direct introducing the exchange rate into a model. Our analysis is based on the daily return series on selected stock indices from the period 1995-2010. We model the dependence structure using dynamic copulas. This allows us to separate the dynamics of dependence from the volatility dynamics.

Suggested Citation

  • Malgorzata Doman & Ryszard Doman, 2011. "The Impact of the Exchange Rate Dynamics on the Dependencies in Global Stock Market," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 11, pages 73-86.
  • Handle: RePEc:cpn:umkdem:v:11:y:2011:p:73-86
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    References listed on IDEAS

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    1. Peter Reinhard Hansen & Asger Lunde & James M. Nason, 2003. "Choosing the Best Volatility Models: The Model Confidence Set Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 839-861, December.
    2. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
    3. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
    4. Panayiotis Theodossiou & Unro Lee, 1993. "Mean And Volatility Spillovers Across Major National Stock Markets: Further Empirical Evidence," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(4), pages 337-350, December.
    5. Nikolay Nenovsky & S. Statev, 2006. "Introduction," Post-Print halshs-00260898, HAL.
    6. Rodriguez, Juan Carlos, 2007. "Measuring financial contagion: A Copula approach," Journal of Empirical Finance, Elsevier, vol. 14(3), pages 401-423, June.
    7. Andrew J. Patton, 2006. "Modelling Asymmetric Exchange Rate Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 527-556, May.
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