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Return-volatility linkages in the international equity and currency markets

  • Francis, Bill B
  • Hasan, Iftekhar

    ()

    (Rensselaer Polytechnic Institute and Bank of Finland Research)

  • Hunter , Delroy M.

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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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0209.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 9/2002.

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Length: 39 pages
Date of creation: 27 May 2002
Date of revision:
Handle: RePEc:hhs:bofrdp:2002_009
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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