Asymmetric effects and long memory in dynamic volatility relationships between stock returns and exchange rates

Chkili, Walid; Aloui, Chaker; Nguyen, Duc Khuong

doi:10.1016/j.intfin.2012.04.009

Cited by 67 publications

(38 citation statements)

References 49 publications

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“…Curiously, subsequent studies (e.g. Abdalla & Murinde, 1997;Ajayi & Mougoue, 1996;Alagidede, Panagiotidis, & Zhang, 2011;Bahmani-Oskooee & Sohrabian, 1992;Bartov & Bodnar, 1994;Chkili, Aloui, & Nguyen, 2012;Doong, Yang, & Wang, 2005;Fernandez, 2006;Granger, Huang, & Yang, 2000;Mok, 1993;Nieh & Lee, 2001;Tsagkanos & Siriopoulos, 2013;Walid, Chaker, Masood, & Fry, 2011;Yau & Nieh, 2009) have supported both views. Although the research subject was expanded from a single country to multiple countries, the studies only displayed the more diversified results of individual countries in order to explain the coexistence of negative and positive relationships.…”

Section: Introductionmentioning

confidence: 99%

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Dynamic heterogeneous panel analysis of the correlation between stock prices and exchange rates

Lee

Wang

2015

Economic Research-Ekonomska Istraživanja

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This article uses quarterly data from 29 countries, during the period from the first quarter of 2000 to the second quarter of 2011, and the Pooled Mean Group (PMG) method to estimate the dynamic heterogeneous panel data model and to verify the correlation between stock prices and exchange rates. According to empirical results, the stock market and the foreign exchange market have a long-run co-integration relationship. In the short-run, the stock market and the foreign exchange market are negatively correlated, supporting the viewpoints of the portfolio approach. However, using the error-correction adjustment process, the long-run relationship between the two is positive, supporting the results of the traditional approach. This study suggests that the viewpoints of both the portfolio approach and the traditional approach can co-exist through long-and short-run adjustments.

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Section: Introductionmentioning

confidence: 99%

“…The empirical study of these relationships has also been extended to volatility relevance, from first-order moments to second-order moments (e.g. Chkili et al, 2012).…”

Section: Introductionmentioning

confidence: 99%

Dynamic heterogeneous panel analysis of the correlation between stock prices and exchange rates

Lee

Wang

2015

Economic Research-Ekonomska Istraživanja

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“…4 These studies aim to explore the causal relationship between currency markets and stock markets at the market level. Second, some studies have investigated the asymmetric exchange rate spillovers on stock prices (Apergis and Rezitis, 2001;Reyes, 2001;Chkili et al, 2012). Most of them carry out the examination of asymmetric volatility spillovers using a GARCH model.…”

Section: Introductionmentioning

confidence: 99%

Asymmetric exchange rate exposure of stock returns: empirical evidence from Chinese industries

Cuestas

Tang

2017

Studies in Nonlinear Dynamics &Amp; Econometrics

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This study explores the asymmetric exchange rate exposure of stock returns building upon the capital asset pricing model (CAPM) framework, using monthly returns of Chinese industry indices. In accordance with the existing literature, industry returns are subject to lagged exposure effects, but the asymmetries vary across industries, which could be due to the discrepancies of trade balance and ownership of certain industries. Furthermore, the dynamic multipliers depict that industry returns quickly respond to changes in the exchange rate and correct the disequilibrium within a short time, making the long run exposure to be symmetric or very small. The remaining shocks are mainly explained by the return of market portfolios. This implies that the ongoing restrictions on the RMB daily trading band do indeed protect the Chinese stock market against the effects of currency movements.

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“…The bivariate GJR-GARCH-M for the mean equations of the six-factor CAPM (stock return equation) and FX rate equation are respectively, Chkili, et al, 2012). , , 3 2 1 , , 3 , 3 2 1 , , 3 , 3 2 1 , , 1 , 3 , 3 2 , , 3…”

Section: Econometric Specificationmentioning

confidence: 99%

Short-horizon excess returns and exchange rate and interest rate effects

Joseph

Lambertides

Savva

2015

Journal of International Financial Markets, Institutions and Mo

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We examine the effects of foreign exchange (FX) and interest rate changes on the excess returns of U.S. stocks, for short-horizons of 1 to 40 days. Our new evidence shows a tendency for the volatility of both excess returns and FX rate changes to be negatively related with FX rate and interest rate effects. Both the number of firms with significant FX rate and interest rate effects and the magnitude of their exposures increase with the length of the return horizon. Our finding seems inconsistent with the view that firms hedge effectively at short-return horizons. JEL: F3; G15Keywords: Exchange rate and interest rate effects; smooth transition function; bivariate GJR-GARCH-M; time-varying conditional correlations; Fama-French-Carhart (FFC) factors 2 1 Using a 5% significance level, Jorion (1990) finds that at most, 5.6% of the 287 non-financial U.S. firms in his sample are significantly impacted by FX rate changes whereas, Muller and Verschoor (2006a) find that 29% of the 935 non-financial U.S. firms in their sample are significantly impacted by FX rate changes. 2 He and Ng (1998) find that 26% of non-financial Japanese firms exhibit significant FX rate effects. Similarly, Prasad and Rajan (1995) find that 25% of U.S. industry portfolios exhibit significant FX rate effects.3 frequency compared to prior work. We focus on short-horizon returns since it is often argued that firms are very effective in managing and hedging their short-term exposures (see Booth, 1996;Chow et al., 1997aChow et al., , 1997b. We assume that our return horizons fall within the time period suggested by prior studies. 3 The idea that firms have good hedging skills is often used to explain why one-period returns provide very weak evidence of FX rate and interest rate effects. This explanation seems reasonable since Fortune 500 firms hedge their cash flow exposures over a two-to-four-quarter horizon (see Dolde, 1993), and up to 82% of U.S. firms hedge for an initial maturity of 90 days or less (see Bodnar et al., 1998, pp. 75-77). So the explanation sits well when linked with risk management practice. Correspondingly, long-horizon returns appear to provide stronger evidence of exposure effects relative to one-period returns, due to the increased difficulty firms have in capturing long-term economic exposure (see Booth, 1996). Of course, CAPM estimates of exposure represent residual risk to both firms and investors.We also examine the conditional correlations obtained from the volatility of excess stock returns and the volatility of FX rate changes. This is because the conditional volatility of excess returns and FX rate changes can affect the relation between excess returns and FX rate changes. There is growing support for this view. Bartov et al. (1996), for example, suggest that the volatility of stock returns appears to increase with the volatility of FX rate changes. We statistically test this view using two separate bivariate (asymmetric) GJR-GARCH(1,1) in mean, hereafter, GJR-GARCH-M, that incorporates CAPM. 4 Volatility spillover can a...

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Asymmetric effects and long memory in dynamic volatility relationships between stock returns and exchange rates

Cited by 67 publications

References 49 publications

Dynamic heterogeneous panel analysis of the correlation between stock prices and exchange rates

Dynamic heterogeneous panel analysis of the correlation between stock prices and exchange rates

Asymmetric exchange rate exposure of stock returns: empirical evidence from Chinese industries

Short-horizon excess returns and exchange rate and interest rate effects

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