Do foreign exchange and equity markets co-move in Latin American region? Detrended cross-correlation approach

Bashir, Usman; Yu, Yugang; Hussain, Muntazir; Zebende, Gilney Figueira

doi:10.1016/j.physa.2016.06.090

Cited by 46 publications

(21 citation statements)

References 34 publications

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“…The first one is a bidirectional causality between market capitalization (CAP) and foreign exchange market (EX). This fact confirms the results of Pan et al (2007), Malarvizhi and Jaya (2012), Kumar (2013), Caporale et al (2014), Do et al (2015) and Bashir et al (2016). Malarvizhi and Jaya (2012) find that there is Bashir et al (2016) a bidirectional causal relationship between the exchange rate and the Nifty; i.e.…”

Section: Resultssupporting

confidence: 80%

“…This fact confirms the results of Pan et al (2007), Malarvizhi and Jaya (2012), Kumar (2013), Caporale et al (2014), Do et al (2015) and Bashir et al (2016). Malarvizhi and Jaya (2012) find that there is Bashir et al (2016) a bidirectional causal relationship between the exchange rate and the Nifty; i.e. changes in stock market affect the exchange rate.…”

Section: Resultssupporting

confidence: 77%

“…Their results support the argument that volatility can be transmitted between stock indexes and exchange rates even when the returns of these two variables are either statistically uncorrelated or exhibit no causality in means. Bashir et al (2016) examine the dynamics of the relationship between foreign exchange markets and stock markets in the period 1991–2015 in Latin America. Their results indicate a weak positive cross-correlation between exchange rate and stock price for all Latin American countries, except for Mexico, which has a strong positive cross-correlation.…”

Section: Literature Reviewmentioning

confidence: 99%

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Stock market performance and foreign exchange market in Egypt: does 25th January revolution matter?

El‐Masry

Badr

2020

IJOEM

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PurposeThis paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009–2016. The study period is divided into two sub-periods: pre- and post-January 25th Egyptian revolution (ER). The reason is to examine how this revolution affects the causal relationship between the two markets' performance.Design/methodology/approachIn this study, the daily basis data are used to enable good and effective observation changes in the foreign exchange rate and stock market performance over time. Stock market indexes and stock market capitalization are used as proxies for stock market performance. Further, the Egyptian pound to US$ exchange rate is used as a measure for foreign exchange market performance. The study analysis is done in stages. The first is to check the variables' stationarity for the pre- and post-revaluation. The second is to examine the cointegration among the variables. The third is to run vector autoregression (VAR) estimates, after which VAR Granger causality tests are employed.FindingsThe results show that the data are not stationary at their levels but stationary in their first difference level while there is no cointegration in the long-run among the variables in both sub-periods. Further, findings indicate that, in the pre-January 25th revolution period, there is a significant causal relationship between the foreign exchange market and stock market indexes and a significant causal relationship between market capitalization (CAP) and exchange rate at the 1% level. However, in the post-January 25th revolution period, the study does not find a significant causal relationship between foreign exchange market and stock market indexes and capitalization.Research limitations/implicationsAs this study focuses on the causal relationship between foreign exchange and stock markets before and after the 25th January Revolution, other macroeconomic variables such as consumer price index, interest rate and GDP were excluded for the comparison purposes with other studies. Further research is suggested to include them in the analysis to find out its effect on the performance of stock market and foreign exchange market.Practical implicationsThe existence of long-run bidirectional causality means that portfolio managers and hedgers may have improved their understanding regarding the dynamic relationship between foreign exchange market and stock market performance as this may help them to plan and implement suitable hedging strategies to guard against currency risk in future crises or events. Investors, fund and portfolio managers and policymakers should give much attention to these event-specific interactions when they make capital budgeting decisions and implement regulation policies. Furthermore, our results may allow portfolio managers, investors and policymakers to assess the importance of informational efficiency for both markets.Originality/valueThis paper is an original contribution to the literature that concerns the causal relationship between stock market and foreign exchange market in the period of political instability and social unrest such as the January 25th Revolution in one of the emerging markets, namely Egypt.

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Section: Resultssupporting

confidence: 80%

Section: Resultssupporting

confidence: 77%

Section: Literature Reviewmentioning

confidence: 99%

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Stock market performance and foreign exchange market in Egypt: does 25th January revolution matter?

El‐Masry

Badr

2020

IJOEM

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“…These effects mean that the negative crisis effects spill over more quickly and with more severe consequences compared to the normal times. Furthermore, the dot-com crisis was also characterized by such effects [109], as was the global financial crisis [110] and the Eurozone debt crisis as well [111]. The negative effects of the COVID-19 crisis compared to the aforementioned ones was confirmed in [112], where authors found similar characteristics regarding stock markets' reactions to those of previous crises.…”

Section: Discussionmentioning

confidence: 89%

Profiting on the Stock Market in Pandemic Times: Study of COVID-19 Effects on CESEE Stock Markets

Škrinjarić

2021

Mathematics

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This research deals with stock market reactions of Central Eastern and South Eastern European (CESEE) markets to the COVID-19 pandemic, via the event study methodology approach. Since the stock markets react quickly to certain announcements, the used methodology is appropriate to evaluate how the aforementioned markets reacted to certain events. The purpose of this research was to evaluate possibilities of obtaining profits on the stock markets during great turbulences, when a majority of the participants panic. More specifically, the contrarian trading strategies are observed if they can obtain gains, although a majority of the markets suffer great losses during pandemic shocks. The contributions to the existing literature of this research are as follows. Firstly, empirical research on CESEE stock markets regarding other relevant topics is still scarce and should be explored more. Secondly, the event study approach of COVID-19 effects utilized in this study has (to the knowledge of the author) not yet been explored on the aforementioned markets. Thirdly, based on the results of CESEE market reactions to specific announcements regarding COVID-19, a simulation of simple trading strategies will be made in order to estimate whether some investors could have profited in certain periods. The results of the study indicate promising results in terms of exploiting other investors’ panicking during the greatest decline of stock market indices. Namely, the initial results, as expected, indicate strong negative effects of specific COVID-19 announcements on the selected stock markets. Secondly, the obtained information was shown to be useful for contrarian strategy in order to exploit great dips in the stock market indices values.

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“…This method, which consists of a generalisation of the detrended fluctuation analysis (DFA) proposed by Peng et al (1994) to detect temporal dependence in time series, has the advantage of being applied in the context of nonstationarity (see, e.g., Zebende et al, 2013;Kristoufek, 2014), thereby circumventing econometric problems related to unit roots and periodic trends that may lead to spurious results. As documented by Bashir et al (2016), the DCCA correlation coefficient proposed by Zebende (2011) proved to be more robust than the linear models in the presence of such issues. Accordingly, by means of this methodology it is possible to grasp if there are co-movements between equity and debt instruments at different scales, which may be relevant to support investors' decisions.…”

Section: Introductionmentioning

confidence: 91%

Tracking the relationship between euro area equities and sovereign bonds

Cabral

Ribeiro

Jo�ã

et al. 2019

IJMEF

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This paper explores the relationship between stocks and sovereign bonds by means of the asymmetric detrended cross-correlation analysis (ADCCA). Drawing on data from 1999.01 to 2018.09 of the first wave of euro area countries, the full sample is divided into three subsets in accordance with economic and financial features. Some findings arise with striking implications for investors and policymakers. Firstly, empirical results show that cross-correlations differ from country to country, depending on the sub-period under analysis and on the time scale. Secondly, likewise within country estimates, crosscountry linkages may point to fragmentation in the euro area with agents moving away from financial assets of lower-rated countries to invest in more robust economies in periods of turmoil. Thirdly, there is evidence of asymmetry since 'flight-to-quality' movements seem to be more relevant than 'flight-to-yield' episodes. Finally, while relationships were globally bidirectional until mid-2007, new causality patterns arose with the financial crisis.

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Do foreign exchange and equity markets co-move in Latin American region? Detrended cross-correlation approach

Cited by 46 publications

References 34 publications

Stock market performance and foreign exchange market in Egypt: does 25th January revolution matter?

Stock market performance and foreign exchange market in Egypt: does 25th January revolution matter?

Profiting on the Stock Market in Pandemic Times: Study of COVID-19 Effects on CESEE Stock Markets

Tracking the relationship between euro area equities and sovereign bonds

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