Return-volatility linkages in the international equity and currency markets
Francis, Bill B.; Hasan, Iftekhar; Hunter, Delroy M. (27.05.2002)
Numero
9/2002Julkaisija
Suomen Pankki
2002
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-20140807567Tiivistelmä
This paper, which is motivated by the literature on international asset pricing and recent work on exchange rate determination, investigates dynamic relationships 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 Key words: international asset pricing, exchange rate determination, equity markets, relationships between currency and equity markets. JEL classification numbers: G12, G14, G15, F31