The news effects on exchange rate returns and volatility: Evidence from Pakistan

Jabeen, Munazza; Rashid, Abdul; Ihsan, Hajra

doi:10.1002/ijfe.2176

Cited by 8 publications

(9 citation statements)

References 63 publications

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“…Similarly, some researchers have successfully-related the behavior of ERV with news announcement. In particular, recently, Jabeen et al (2021) investigated the influence of domestic and foreign macroeconomic news announcement on exchange-rate returns and volatility. They found that both types of news have quite significant role in determining exchange-rate dynamics.…”

Section: Literature Reviewmentioning

confidence: 99%

Empirical determinants of exchange-rate volatility: evidence from selected Asian economies

Rashid

Basit

2021

JCEFTS

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Purpose This paper aims to explore the empirical determinants of exchange-rate volatility (ERV) in selected Asian economies, namely, Bangladesh, China, India, Indonesia, Malaysia and Pakistan. Specifically, it examines how the volatility of foreign reserves, government spending, industrial production, gold prices and terms of trade affect monthly ERV during the examined period. Design/methodology/approach The authors carry out the empirical analysis by using monthly data for the period January 1997–March 2019. First, the volatility of the underlying variables is measured based on the conditional variances obtained by estimating the univariate (generalized) autoregressive conditional heteroskedasticity [(G)ARCH] model for each variable during the study period. Next, the autoregressive conditional heteroscedasticity (ARCH)-Lagrange multiplier test is applied to ensure that there are no remaining ARCH effects in the residuals. Finally, the multivariate autoregressive-moving average-GARCH (1, 1) models are estimated to examine whether and how the volatility of the underlying variables affects ERV. Findings The results reveal that the current period volatility of exchange rates is significantly affected by ERV in the previous period in all selected countries. The results also indicate that the volatilities of the underlying macroeconomic variables are quite differently related to ERV in examined Asian countries. Foreign-reserve volatility (VFXRES) has negative and significant impacts on ERV in Bangladesh, China and Malaysia. Government-spending volatility is negatively related to ERV in India, whereas it is positively related to ERV in all other examined countries. The results also suggest that although terms-of-trade volatility reduces ERV in both Bangladesh and Pakistan, it amplifies ERV in the remaining examined countries. However, gold-price volatility (VGOLDP) significantly, positively contributes to ERV in Bangladesh, Indonesia and Malaysia. On the contrary, the higher volatility in industrial production (VIPI) results in lower ERV in Indonesia and Pakistan, whereas it increases ERV in China, India and Malaysia. Practical implications The findings have several important policy implications. First, the findings suggest that both Bangladesh and Malaysia should keep an adequate level of foreign reserves to stabilize their foreign exchange rates. Second, as government-spending volatility has a vital role in determining ERV, it is necessary to bring sustainability and continuity in government expenditures. Bangladesh and Pakistan can stabilize their foreign exchange rates by making exports more competitive, viable and accessible. Originality/value This paper significantly contributes to the existing literature by exploring how the behavior of unexpected variations in the factors determining exchange rates affects ERV in selected Asia countries. Most of the published studies have examined the determinants of exchange rates by considering the macroeconomic variables at their levels. Departing from the existing studies, this paper significantly relates the volatility (second moment) of exchange rate determinants to the behavior of ERV. Further, this paper provides firsthand empirical evidence on this issue for the selected Asian economies.

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Section: Literature Reviewmentioning

confidence: 99%

Empirical determinants of exchange-rate volatility: evidence from selected Asian economies

Rashid

Basit

2021

JCEFTS

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“…Many studies have focused on certain global factors, such as crude oil prices, to determine their impact on the stock market (Al‐hajj, Al‐Mulali, & Solarin, 2021; Gajurel & Chawla, 2022; Xu, Ma, Chen, & Zhang, 2019). Others concentrate on exchange rates (Aquino, 2005; Iyke & Ho, 2021; Jabeen, Rashid, & Ihsan, 2022) or other macroeconomic variables. However, only a few studies have combined more than one macroeconomic variable.…”

Section: Literature Reviewmentioning

confidence: 99%

Impact of global macroeconomic factors on spillovers among Australian sector markets: Fresh findings from a wavelet‐based analysis

Jiang

Khoury

Alshater

et al. 2023

Australian Economic Papers

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This study investigates the spillover dynamics among 10 Australian sectoral indices and their connectedness to global factors, including the WTI crude oil price, oil market volatility, Australian exchange rate, U.S. stock market volatility index and Infectious Disease Tracker Index. Using data from May 14, 2007 to March 31, 2022, this study applies the time‐varying parameter vector autoregressive model to study their static and dynamic connectedness, wavelet coherence analysis to investigate the time‐frequency co‐movement of global macroeconomic factors with Australian sector stock indices and wavelet decomposition‐based Granger causality. The results show that aggressive stocks (Industrials, Consumer Discretionary and Financials) are net transmitters, while defensive stocks (Health, Information Technology, Communication and Utilities) are net receivers of spillovers. The coronavirus pandemic has increased systemic risk, causing radical changes in net connectedness. Additionally, global macroeconomic factors drive the connectedness of the Australian sectoral indices, with oil and exchange rates moving in phase, and oil volatility, stock volatility and the Infectious Disease Tracker Index moving in antiphase. Global stock and oil market volatility has a significant impact on the Australian sector's returns over short‐, medium‐ and long‐term horizons. This study provides valuable insights to investors and policymakers by carefully examining the relationships between global factors and Australian sectoral indices.

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“…(2) We apply “bilateral trade news” as an intermediary, which captures the fluctuations in the China–US economic and trade relationship. Although “news” effects on short‐term exchange rate volatility have been discussed substantially, the majority of the studies have considered macroeconomic news events from only one country and their impact on the related exchange rate (Du & Pentecost, 2021; Korus & Celebi, 2019), or compared the relative influence of macro news from two countries on the bilateral exchange rate (Jabeen et al, 2022). When it comes to the response on the RMB/USD bilateral exchange rate, Chinese and US macroeconomic news were gathered separately (Ho et al, 2017).…”

Section: Literature Reviewmentioning

confidence: 99%

“…In recent years, the impact of news on bilateral exchange rates has gained increasing attention. Examples of these studies are those on the impact of public information flows on the volatility of the RMB-USD exchange rates (Ho et al, 2017); whether news events measured from big data are significant drivers of unexpected movements in the spot JPY/USD exchange rate (Du & Pentecost, 2021); impact of Brexit-related events on the spot exchange rate of the British pound against the euro and the US dollar (Korus & Celebi, 2019); the effects of the US and PAK domestic macroeconomics on the PKR/USD exchange rates (Jabeen et al, 2022); and the role of economic news in predicting US dollar vis-à-vis the British Sterling Pound exchange rate (Narayan et al, 2021). The majority of these studies have shown significant connections between news events and bilateral exchange rate volatility.…”

Section: Impact Of News Events On Exchange Ratementioning

confidence: 99%

China–US economic and trade relations, trade news, and short‐term fluctuation of the RMB exchange rate

Wei

Chen

2022

Rev International Economics

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The trade war between the US and China affects the fluctuation of RMB exchange rate. We collect news on China-US trade policies and talks from January 2017 to July 2020. Results show that China-US dialogue and tariff imposition have the greatest impact on the percentage of RMB appreciation and depreciation. Additionally, tariff relaxation and increasing enterprise restrictions can cause a sharp appreciation and depreciation. "Policies" events and trade news from the US influence RMB fluctuations the most significantly. Finally, positive events cannot significantly cause RMB appreciation, but negative events can significantly cause RMB devaluation.

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The news effects on exchange rate returns and volatility: Evidence from Pakistan

Cited by 8 publications

References 63 publications

Empirical determinants of exchange-rate volatility: evidence from selected Asian economies

Empirical determinants of exchange-rate volatility: evidence from selected Asian economies

Impact of global macroeconomic factors on spillovers among Australian sector markets: Fresh findings from a wavelet‐based analysis

China–US economic and trade relations, trade news, and short‐term fluctuation of the RMB exchange rate

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