Return-volatility linkages in the international equity and currency markets

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Title: Return-volatility linkages in the international equity and currency markets
Author: Francis, Bill B. ; Hasan, Iftekhar ; Hunter, Delroy M.
Organization: Suomen Pankki
Series: Bank of Finland. Discussion papers
Series number: 9/2002
Year of publication: 2002
Publication date: 27.5.2002
Pages: 36 s.
Keywords: valuuttakurssit; osakemarkkinat; volatiliteetti; valuuttamarkkinat; GARCH
JEL: G12; G14; G15; F31
Abstract: This paper, which is motivated by the literature on international asset pricing and recent work on exchange rate determination, investigates dynamic relationships 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 Key words: international asset pricing, exchange rate determination, equity markets, relationships between currency and equity markets. JEL classification numbers: G12, G14, G15, F31

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