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The effect of exchange rate shocks on the volatility of Australian sector excess returns: a note

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  • Patricia Fraser
  • Nicolaas Groenewold

Abstract

The study uses GARCH-M methodology to examine the effect of exchange rate shocks on the volatility of excess returns for the nineteen sectors of the Australian stock market. The data covers the period December 1979 through April 1994. The evidence suggests that news on exchange rates can improve the volatility forecasts of certain Australian stock market sector excess returns. The findings have implications for the professional investor looking to diversify risk and, in addition, give some support to asset pricing models that place information on the state of the economy as central to the process determining equity returns.

Suggested Citation

  • Patricia Fraser & Nicolaas Groenewold, 2000. "The effect of exchange rate shocks on the volatility of Australian sector excess returns: a note," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 77-81.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:2:p:77-81
    DOI: 10.1080/135048500351852
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    References listed on IDEAS

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    Cited by:

    1. Ibrahim Chowdhury & Lucio Sarno, 2004. "Time‐Varying Volatility in the Foreign Exchange Market: New Evidence on its Persistence and on Currency Spillovers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5‐6), pages 759-793, June.
    2. Shafique, Attayah & Ayub, Usman & Zakaria, Muhammad, 2019. "Don’t let the Greed catch you! Pleonexia rule applied to Pakistan stock exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 524(C), pages 157-168.
    3. Ibrahim Chowdhury & Lucio Sarno, 2004. "Time‐Varying Volatility in the Foreign Exchange Market: New Evidence on its Persistence and on Currency Spillovers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5‐6), pages 759-793, June.
    4. Chee Wooi Hooy & Hui Boon Tan & Annuar Md Nassir, 2004. "Risk Sensitivity of Bank Stocks in Malaysia: Empirical Evidence Across the Asian Financial Crisis," Asian Economic Journal, East Asian Economic Association, vol. 18(3), pages 261-276, September.

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