The Correlation between Fx Rate Volatility and Stock Exchange Returns Volatility: An Emerging Markets Overview

Karoui, Aymen

doi:10.2139/ssrn.892086

Cited by 13 publications

(10 citation statements)

References 12 publications

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“…The outcome of a positive sign of the rand volatility goes hand in hand with results from other studies that investigated the relationship between these two variables. The result of this study goes hand in hand with that of Karoui (2006) and that of Adjasi and Biekpe (2005).…”

Section: Variance Equationmentioning

confidence: 60%

Effects of Exchange Rate Volatility on the Stock Market: A Case Study of South Africa

Mlambo¹,

Maredza

Sibanda³

2013

MJSS

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This study assessed the effects of currency volatility on the Johannesburg Stock Exchange. An evaluation of literature on exchange rate volatility and stock markets was conducted resulting into specification of an empirical model. The Generalised Autoregressive Conditional Heteroskedascity (1.1) (GARCH) model was used in establishing the relationship between exchange rate volatility and stock market performance. The study employed monthly South African data for the period 2000 -2010. The data frequency selected ensured an adequate number of observations. A very weak relationship between currency volatility and the stock market was confirmed. The research finding is supported by previous studies. Prime overdraft rate and total mining production were found to have a negative impact on Market capitalisation. Surprisingly, US interest rates were found to have a positive impact on Market capitalisation. The study recommended that, since the South African stock market is not really exposed to the negative effects of currency volatility, government can use exchange rate as a policy tool to attract foreign portfolio investment. The weak relationship between currency volatility and the stock market suggests that the JSE can be marketed as a safe market for foreign investors. However, investors, bankers and portfolio managers still need to be vigilant in regard to the spillovers from the foreign exchange rate into the stock market. Although there is a weak relationship between rand volatility and the stock market in South Africa, this does not necessarily mean that investors and portfolio managers need not monitor the developments between these two variables.

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Section: Variance Equationmentioning

confidence: 60%

Effects of Exchange Rate Volatility on the Stock Market: A Case Study of South Africa

Mlambo¹,

Maredza

Sibanda³

2013

MJSS

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“…They find that therz is no strong evidence that higher exchange rate variability implies higher stock market volatility. Finally, Karoui (2006) finds a significant positive linkage between the two volatilities, using data from 18 emerging countries.…”

Section: -The Empirical Literaturementioning

confidence: 88%

“…On a theoretical level, the relationship between the exchange rates and the outputs of the stocks can be understood through a theoretical framework given by Karoui (2006) in which there are two agents: the firm and the foreign investor. Both of them have different objectives and behavior, so that the firm seeks to maximize its profit in terms of local currency while the foreign investor seeks to maximize the output of his portfolio in terms of foreign currency.…”

Section: -Theoretical Frameworkmentioning

confidence: 99%

The Correlation between FX rate Volatility And Stock Exchange Returns Volatility: Empirical Evidence from the Egyptian Market

Hanafy

2008

المجلة العلمیة للبحوث التجاریة

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According to the famous "Capital Asset Pricing Model", the market return should be related to the risk associated with macroeconomic health of economy as the latter affects an individual's firm cash flows and the systematic risk component. Therefore, the overall performance of Macroeconomic condition of a firm can be evaluated based on some macro variables. In this paper, the main aim is to examine how the volatility of the US$ Exchange rate is related to the stock market return volatility in the context of Egyptian capital market. Weekly data for the (0111998-0412004) period are considered for the study. Since many macroeconomic variables and stock returns are believed to follow GARCH process, this technique is used to find predicted volatility series for the variables considered in the study.

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“…Further, the magnitude of the negative volatility of USD is lower to that of the GBP volatility towards the stock return volatilities. As Karoui (2006) depicted, emerging market countries are attempting to adjust their currencies around certain powerful global currencies such as US dollars, by adopting free floating rates or managed floating exchange rates so that fluctuations in exchange rates in such currencies become too small compared to others. Thus, it manifests that when the exchange rates become less volatile it will lead to an increase in the volatility in the stock returns of ASPI.…”

Section: Estimation Of Volatility With Carch (11) Modelmentioning

confidence: 99%

“…Further, being an emerging market country,Sri Lanka has confronted several changes to its exchange rate regime time to time where strong fluctuations in the exchange rates have occurred due to various consequences resulted not only from internal environment but also from external environment as well. Thus, in this paper the author attempts to empirically investigate the impact of exchange rate volatility on stock market return volatility from an emerging country's perspective by using both standard Ordinary Least Squares (OLS) and Generalized Autoregressive Conditional Heteroscedasticity(GARCH) models whereas Karoui (2006), depicted that the emerging market countries are tightly linked with major currencies in the world such as US dollars, Euros and British Pounds. Furthermore, the contribution of this paper to the existing literature is two-fold.…”

Section: Introductionmentioning

confidence: 99%

Effects of Exchange Rate Volatility on Stock Market Return Volatility: Evidence from an Emerging Market

2016

IJSR

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The purpose of this study is to empirically investigate the effects of exchange rate volatility on stock market return volatility from an emerging market's perspective.This study utilizes daily time series data for All Share Price Index (ASPI) returns of Colombo Stock Exchange (CSE) and exchange rates over a period of six years from January 2010 to December 2015. Further, the study utilizes the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) estimation modelin order to identify the impact of exchange rate volatility on stock market return volatility. The empirical results of the study reveal that the volatility of Euro exchange rate has a positive and significant impact on ASPI return volatility whilst the volatility of US Dollars and British Pounds exchange rates are found to be negative and insignificant. Overall, the findings of the study highlight that the exchange rate volatility is another determinant of stock market return volatility where due consideration should be given in making capital market investment decisions.

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The Correlation between Fx Rate Volatility and Stock Exchange Returns Volatility: An Emerging Markets Overview

Cited by 13 publications

References 12 publications

Effects of Exchange Rate Volatility on the Stock Market: A Case Study of South Africa

Effects of Exchange Rate Volatility on the Stock Market: A Case Study of South Africa

The Correlation between FX rate Volatility And Stock Exchange Returns Volatility: Empirical Evidence from the Egyptian Market

Effects of Exchange Rate Volatility on Stock Market Return Volatility: Evidence from an Emerging Market

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