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What Multiscale Approach Can Tell About the Nexus Between Exchange Rate and Stocks in the Major Emerging Markets?

Author

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  • Dejan Zivkov

    (Novi Sad School of Business, University of Novi Sad, Serbia)

  • Suzana Balaban

    (Faculty of Economics in Subotica, University of Novi Sad, Serbia)

  • Jasmina Djuraskovic

    (The College of Tourism, University of Belgrade, Serbia)

Abstract

This paper tries to answer which theory – the portfolio balance approach or the flow-oriented model, better explains the nexus between the national stock and exchange rate markets at different time-horizons in the major emerging markets of Europe and Asia. For that task we employ wavelet coherence and phase difference. Wavelet coherence results suggest that correlation between the two markets is not particularly strong throughout the observed period and at different wavelet scales, except in the period of World financial crisis (WFC). Phase difference in the Czech Republic, Turkey, Poland, Russia and South Korea are in anti-phase position during WFC in short run, which is in accordance with the portfolio-balance approach, whereby the stock market has the leading role. Also, phase difference at longer time-horizon indicate that an anti-phase situation is relatively common phenomenon in Poland, Russia, Turkey and South Korea. However, when we do calculations on real values, the results suggest that the real stock returns and the real exchange rate changes overwhelmingly behave in line with the flow-oriented model in all emerging markets, except for Poland. As for the Czech and Indian cases, phase differences indicate that the markets behave predominantly in accordance with the flow-oriented model at long-term horizon, regardless of whether nominal or real values are used.

Suggested Citation

  • Dejan Zivkov & Suzana Balaban & Jasmina Djuraskovic, 2018. "What Multiscale Approach Can Tell About the Nexus Between Exchange Rate and Stocks in the Major Emerging Markets?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(5), pages 491-512, October.
  • Handle: RePEc:fau:fauart:v:68:y:2018:i:5:p:491-512
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    Cited by:

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    2. Jovan Njegic & Milica Stankovic & Dejan Živkov, 2019. "What Wavelet-Based Quantiles Can Suggest about the Stocks-Bond Interaction in the Emerging East Asian Economies?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(1), pages 95-119, February.
    3. Dejan Živkov & Jovan Njegić & Marko Pećanac, 2019. "Multiscale interdependence between the major agricultural commodities," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 65(2), pages 82-92.
    4. Dejan Živkov & Slavica Manić & Jelena Kovačević & Željana Trbović, 2022. "Assessing volatility transmission between Brent and stocks in the major global oil producers and consumers – the multiscale robust quantile regression," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(1), pages 67-93, January.
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    6. Dejan Zivkov & Marina Gajic-Glamoclija & Jelena Kovacevic & Sanja Loncar, 2020. "Inflation Uncertainty and Output Growth - Evidence from the Asia-Pacific Countries Based on the Multiscale Bayesian Quantile Inference," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 70(5), pages 461-486, November.
    7. Maurice Omane-Adjepong & Imhotep Paul Alagidede, 2020. "Dynamic Linkages and Economic Role of Leading Cryptocurrencies in an Emerging Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(4), pages 537-585, December.
    8. Jasmina Ðuraškovic & Slavica Manic & Dejan Živkov, 2019. "Multiscale Volatility Transmission and Portfolio Construction Between the Baltic Stock Markets," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(2), pages 211-235, April.

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    More about this item

    Keywords

    stock and exchange rate; emerging markets; wavelet coherence; phase difference;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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