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Exchange rate movements and stock market returns in a regime-switching environment: Evidence for BRICS countries

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  • Chkili, Walid
  • Nguyen, Duc Khuong

Abstract

We use a regime-switching model approach to investigate the dynamic linkages between the exchange rates and stock market returns for the BRICS countries (Brazil, Russia, India, China and South Africa). The univariate analysis indicates that stock returns of the BRICS countries evolve according to two different regimes: a low volatility regime and a high volatility regime. On the other hand, our evidence from Markov switching VAR models suggests that stock markets have more influence on exchange rates during both calm and turbulent periods. These empirical insights have important implications for portfolio investments and currency risk hedging.

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  • Chkili, Walid & Nguyen, Duc Khuong, 2014. "Exchange rate movements and stock market returns in a regime-switching environment: Evidence for BRICS countries," Research in International Business and Finance, Elsevier, vol. 31(C), pages 46-56.
  • Handle: RePEc:eee:riibaf:v:31:y:2014:i:c:p:46-56
    DOI: 10.1016/j.ribaf.2013.11.007
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    More about this item

    Keywords

    Stock markets; Foreign exchange rate; BRICS countries; Markov switching VAR;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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