Exchange rate regime, volatility and international correlations on bond and stock markets

Bodart, Vincent; Reding, Paul

doi:10.1016/s0261-5606(98)00042-4

Cited by 103 publications

(58 citation statements)

References 17 publications

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“…While there has been some research on the integration of European equity markets and its time variations (e.g. Longin and Solnik 1995, Bodart and Reding 1999, Hardouvelis et al 1999, no systematic attempt has yet been undertaken to explain which factors have been driving the time variations in integration. This is the main contribution this paper aims to make.…”

Section: Introductionmentioning

confidence: 99%

“…Most research testing for financial integration has either ignored this issue entirely or has looked at different sub-periods to obtain information about the dynamics of integration (e.g. Longin andSolnik 1995, Bodart andReding 1999). Although comparing different sub-periods may yield a first proxy for long term changes, it masks much of the time variation since the degree of integration may often change frequently and exhibit high volatility.…”

Section: Introductionmentioning

confidence: 99%

“…And third, there is evidence that exchange rate uncertainty can have a large effect on financial integration because exchange rate risk is an important source of risk priced on capital markets (e.g. Dumas and Solnik 1995, Bodart and Reding 1999, Hardouvelis et al 1999.…”

Section: Introductionmentioning

confidence: 99%

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Financial market integration in Europe: on the effects of EMU on stock markets

2002

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in E U R O P E A N C E N T R A L B A N K W O R K I N G PA P E R S E R I E S AbstractThis paper analyzes the integration process of European equity markets since the 1980s. Its central focus is on the role that EMU, and specifically, changes in exchange rate volatility, has played in this process of financial integration. Building on an uncovered interest rate parity condition to measure financial integration, a trivariate GARCH model with time-varying coefficients yields three key results: first, European equity markets have become highly integrated only since 1996. Second, the Euro area market has gained considerably in importance in world financial markets and has taken over from the US as the dominant market in Europe.And third, the integration of European equity markets is in large part explained by the drive towards EMU, and in particular the elimination of exchange rate volatility and uncertainty in the process of monetary unification.JEL classification: C32, F3, G15

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Financial market integration in Europe: on the effects of EMU on stock markets

2002

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“…The portfolio set has been expanded enormously as all Euro zone investors may diversify across international borders between participating states without worrying about currency fluctuations. Bodart and Reding (1999) found that exchange rate risk reduces market integration. Of course, the magnitude of the benefits of increasing the investment set will be dictated by the correlations between stocks in these countries.…”

Section: Introductionmentioning

confidence: 99%

The effect of the Euro on country versus industry portfolio diversification

Flavin

2004

Journal of International Money and Finance

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We examine the relative benefits of industrial versus geographical diversification in the Euro zone before and after the introduction of the common currency. A priori, one may expect that increased stock market correlation would precipitate a move from geographical towards industrial diversification. We employ the empirical model of Heston and Rouwenhorst but show that adopting a panel data approach is a more efficient estimation method. We find evidence of a shift in factor importance; from country to industry. However, this is not exclusive to the Euro zone but is also present for non-EMU European countries. Therefore, fund managers should pursue industrial rather than geographical diversification strategies. #

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“…Bodart and Reding (1999) found that rise in volatility of the Deutschmark was accompanied by a decline in international correlations between Germany and other sample countries, such as France, Belgium, UK, Sweden, and…”

Section: )mentioning

confidence: 99%

Factors Influencing Equity Return Correlations between China’s Pairs of A- and B-Share Markets: Effect of QFII’s Implementation

Hsiao¹,

Tu²,

Chen³

2017

IJFR

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This paper was intended to examine factors influencing the correlations between A-and B-shares of individual firms, and explore the effects of Qualified Foreign Institutional Investor's (QFII) implementation on correlations. The empirical results show that interest rate differential, relative turnover rate, relative return volatility, and market sentiment had impacts on correlation both before and after the QFII's implementation. After its implementation, correlations became more sensitive to premium, relative turnover rate and market sentiment. Furthermore, the estimated constant term for overall market correlation became more negative (raw values from -0.3413 to -0.8815), indicating an increasing correlation between A-and B-shares' returns. The policy implications are that much benefit of diversification into emerging markets such as paired A-and B-shares can be accomplished, together with taking several influential factors into account.

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Exchange rate regime, volatility and international correlations on bond and stock markets

Cited by 103 publications

References 17 publications

Financial market integration in Europe: on the effects of EMU on stock markets

Financial market integration in Europe: on the effects of EMU on stock markets

The effect of the Euro on country versus industry portfolio diversification

Factors Influencing Equity Return Correlations between China’s Pairs of A- and B-Share Markets: Effect of QFII’s Implementation

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