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Return-volatility linkages in the international equity and currency markets

Author

Listed:
  • Bill B. Francis

    (University of South Florida - College of Business Administration)

  • Iftekhar Hasan

    (Rensselaer Polytechnic Institute - Accounting, Finance & Economics)

  • Delroy M. Hunter

    (University of South Florida - College of Business Administration)

Abstract

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

Suggested Citation

  • Bill B. Francis & Iftekhar Hasan & Delroy M. Hunter, 2004. "Return-volatility linkages in the international equity and currency markets," Finance 0405022, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0405022
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    References listed on IDEAS

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    Cited by:

    1. Flavin, Thomas J., 2004. "The effect of the Euro on country versus industry portfolio diversification," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1137-1158.
    2. repec:kap:iaecre:v:17:y:2011:i:2:p:119-133 is not listed on IDEAS
    3. Sinha, Pankaj & Sinha, Gyanesh, 2010. "Volatility Spillover in India, USA and Japan Investigation of Recession Effects," MPRA Paper 21873, University Library of Munich, Germany.
    4. Granlund, Peik, 2002. "Bank exit legislationin US, EU and Japanese financial centres," Research Discussion Papers 25/2002, Bank of Finland.
    5. Andreou, Elena & Matsi, Maria & Savvides, Andreas, 2013. "Stock and foreign exchange market linkages in emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 248-268.

    More about this item

    Keywords

    international asset pricing; exchange rate determination; equity markets; relationships between currency and equity markets;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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