2017
DOI: 10.2139/ssrn.3205055
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Uncovered Equity 'Disparity' in Emerging Markets

Abstract: The portfolio-rebalancing theory of Hau and Rey (2006) yields the uncovered equity parity (UEP) prediction that local-currency equity return appreciation is offset by currency depreciation. Vector autoregressive model estimation and tests for eight Asian emerging markets using daily data reveal instead a positive nexus between equity returns and currency returns. The extent of the uncovered equity "disparity" is time-varying and asymmetric since it exacerbates in crises. Our analysis suggests that the UEP fail… Show more

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Cited by 2 publications
(1 citation statement)
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“…Cappiello and De Santis (2007) report imperfect support for the relationship between a currency's appreciation and the relative over-performance of it stock market. Cho et al (2016) document that while the correlation between domestic currency returns and stock returns differentials is negative among developed economies (in accordance with UEP), it is positive among emerging economies (confirmed for Asian countries by Fuertes et al (2018). Such differences may explain why Cenedese et al (2016) do not find any support for UEP for a cross-section of 43 countries.…”
Section: Introductionmentioning
confidence: 89%
“…Cappiello and De Santis (2007) report imperfect support for the relationship between a currency's appreciation and the relative over-performance of it stock market. Cho et al (2016) document that while the correlation between domestic currency returns and stock returns differentials is negative among developed economies (in accordance with UEP), it is positive among emerging economies (confirmed for Asian countries by Fuertes et al (2018). Such differences may explain why Cenedese et al (2016) do not find any support for UEP for a cross-section of 43 countries.…”
Section: Introductionmentioning
confidence: 89%