Research Discussion Papers, Bank of Finland
No 9/2002:
Return-volatility linkages in the international equity and currency markets
Bill B Francis, Iftekhar Hasan ()
and Delroy M. Hunter
Abstract: This paper, which is motivated by the literature on
international asset pricing and recent work on exchange rate determination,
investigates dynamic relationshiops between major currency and equity
markets. Using a multivariate GARCH framework, we examine conditional
cross-autocorrelations between pairs of national equity markets and related
exchange rates. This provides a parsimonious way of testing mean-volatility
relationships in currency and equity markets and re-examining the
robustness of relationships between equity markets, while controlling for
exchange rate effects. We find that the relationship between currency and
equity markets is bi-directional, significant, persistent, and independent
of the relationship strictly between equity markets, and that it is better
captured by the conditional second moments.
Keywords: international asset pricing; exchange rate determination; equity markets; relationships between currency and equity markets; (follow links to similar papers)
JEL-Codes: F31; G12; G14; G15; (follow links to similar papers)
39 pages, May 27, 2002
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