“…It relates to the handful of studies that just examine the relationship between local-currency equity returns and FX returns (but not equity flows) to test UEP. The evidence for developed markets is fairly supportive Rey, 2004, 2006;Cappiello and De Santis, 2007) 3 while, in contrast, for EMs it has been shown that local currency appreciation follows a bullish local stock market (Kim, 2011;Cho et al, 2016). In a portfolio study for 42 countries, Cenedese et al (2015) find that FX returns are unrelated to country equity return differentials, and that the positive excess returns of a portfolio strategy that longs (shorts) the country equity indices with better (worse) prospects cannot fully be explained by either standard risk factors or global equity volatility risk.…”