An Empirical Relationship Between Exchange Rates, Interest Rates and Stock Returns PDF Download
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Author: Sudharshan Reddy Paramati
Publisher:
ISBN:
Category :
Languages : en
Pages : 14
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Book Description
In this paper study aims to investigate the relationship between call money rates, exchange rates and stock returns from the perspective of India. We use monthly data for the time span of April 1992 to March 2011. This provides sufficient data set for the empirical analysis. Result from Granger causality test evidences bidirectional relationship between call money rates and exchange rates. It is also identified that call money rates and exchange rates Granger cause stock returns and did not find reverse causality from stock returns to call money and exchange rates. To explore, lead-lag interaction among the variables studied we employed VAR models. Results suggest that there is substantial lead-lag relationship from call money rates to exchange rates and stock returns. Similar relationship also found from exchange rates to call money rates and stock returns. However, there is no evidence of lead-lag causation from stock returns to call money and exchange rates. Findings of this study are useful for the investors and policy makers. In investors' standpoint, they can utilize this historical information of call money rates and exchange rates for predicting the movements of stock returns. Similarly, policy makers can stabilize the stock market fluctuations by adopting appropriate policies towards interest rates and exchange rates for time to time.
Author: Sudharshan Reddy Paramati
Publisher:
ISBN:
Category :
Languages : en
Pages : 14
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Book Description
In this paper study aims to investigate the relationship between call money rates, exchange rates and stock returns from the perspective of India. We use monthly data for the time span of April 1992 to March 2011. This provides sufficient data set for the empirical analysis. Result from Granger causality test evidences bidirectional relationship between call money rates and exchange rates. It is also identified that call money rates and exchange rates Granger cause stock returns and did not find reverse causality from stock returns to call money and exchange rates. To explore, lead-lag interaction among the variables studied we employed VAR models. Results suggest that there is substantial lead-lag relationship from call money rates to exchange rates and stock returns. Similar relationship also found from exchange rates to call money rates and stock returns. However, there is no evidence of lead-lag causation from stock returns to call money and exchange rates. Findings of this study are useful for the investors and policy makers. In investors' standpoint, they can utilize this historical information of call money rates and exchange rates for predicting the movements of stock returns. Similarly, policy makers can stabilize the stock market fluctuations by adopting appropriate policies towards interest rates and exchange rates for time to time.
Author: Jeffrey A. Frankel
Publisher: MIT Press
ISBN: 9780262061544
Category : Business & Economics
Languages : en
Pages : 468
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Book Description
These seventeen essays provide an accessible and thorough reference for understanding the role of exchange rates in the international monetary system since 1973, when the rates were allowed to float. The essays analyze such issues as exchange rate movements, exchange risk premia, investor expectations of exchange rates and behavior of exchange rates in different systems. Frankel's sound empirical treatment of exchange rate questions shows that it is possible to produce work that is interesting from a purely intellectual viewpoint while contributing to practical knowledge of the real world of international economics and finance.The essays have been organized in a way that provides an introduction to the field of empirical international finance. Part I documents the steady reduction in barriers to international capital movement and leads logically to part II, which explains how exchange rates are determined. Both monetary and portfolio-based models are surveyed in part II, providing a clear transition to the topic of part III; the possible existence of an exchange risk premium. Part IV applies the tools discussed in earlier sections to explore various policy questions related to exchange rate expectations such as whether foreign exchange intervention matters and whether the European monetary system had become credible by 1991. Each part begins with a detailed introduction explaining not only the central issues of that section but also suggesting connections with other essays in the book.Jeffrey A. Frankel is Professor of Economics at the University of California, Berkeley.
Author: Georgios Katechos
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The understanding of the mechanism determining exchange rates is still an unsolved puzzle in the field of international economics. In the search for the underlying causes of the failure of existing approaches to explain a large proportion of short term exchange rate movements, our review of methodology literature revealed that a significant number of scholars consider the methodological approach employed by mainstream economics as a main cause for the disappointing result of established approaches. In particular, the excessive use of formal modelling and quantitative data as well as the use of oversimplified assumptions has been criticized. In response to this critique we chose to use a more pluralistic approach in our research methodology by employing both qualitative as well as quantitative data analysis. For the analysis of qualitative data, we employed an approach based on grounded theory principles, where we analyze Reuters Foreign exchange market reports. The findings of the qualitative data analysis show that, based on market practitioners commentary, there are two predominant variables affecting exchange rates. First, expectations on interest rate changes appears to be a major variable affecting currency value. An upward revision of interest rate expectations usually suggests an increase in the value of the currency concerned and vice versa. Second major variable affecting exchange rates appear to be global equity returns. In contrast to interest rates, which is a country specific variable, global equity returns is a global variable affecting currencies based on their relative interest rate levels and safe haven attributes. In particular, it is suggested that higher yielding currencies' value is positive related to global equity returns, while low/lower yielding and safe haven currencies' value is negatively related to global equity returns. The empirical test we performed to explore the relationship between exchange rates and global equity returns suggest that they are indeed linked. The sign of the relationship depends on the characteristics of the currencies examined. When equity prices increase, currencies with higher interest rates tend to appreciate, whereas currencies with lower interest rates tend to depreciate and vice versa. In addition, the strength of the relationship depends to some extent on relative interest differentials. A stronger relationship is observed when interest differentials are relatively large, while the explanatory power of the model is reduced when interest rate differentials are relatively narrow. Our study presents evidence on the role of stock markets in exchange rate determination which is considerable different to the focus of current theory. Whereas current research focuses on stock market's relative stock market returns in the respective countries, the findings of this thesis suggests that global stock market returns affect exchange rate movements based on differentiated characteristics of different currencies. Another important contribution of this thesis is that we illustrate the complexity of interactions and links among different variables. For example, whereas interest changes were seen as positively correlated to the home currency value, the relationship was seen as being reversed because of the possible effect of higher interest rates on the subprime crisis. Another example of complex links is the relationship between exchange rates and equity markets. For example, whereas the USD effective exchange rate was not related equity returns during the initial stages of the subprime crises, the strength of the relationship increased significantly when the crisis escalated and the demand for USD increased due to safe haven flows.
Author: Jacob Frenkel
Publisher: Routledge
ISBN: 1135043493
Category : Business & Economics
Languages : en
Pages : 389
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Book Description
This book collects together the basic documents of an approach to the theory and policy of the balance of payments developed in the 1970s. The approach marked a return to the historical traditions of international monetary theory after some thirty years of departure from them – a departure occasioned by the international collapse of the 1930s, the Keynesian Revolution and a long period of war and post-war reconstruction in which the international monetary system was fragmented by exchange controls, currency inconvertibility and controls over international trade and capital movements.
Author: Franciscus Gertruda Josephus Anna Nissen
Publisher:
ISBN: 9789090103006
Category :
Languages : en
Pages : 169
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Book Description
Author: Nargiz Nasirova
Publisher:
ISBN:
Category :
Languages : en
Pages : 77
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Book Description
It is accepted that stock returns are influenced by numerous economic and fundamental factors. This masters thesis aims to investigate the influence of economic factors such as interest rate on stock returns. The thesis explores the theoretical aspects of stock return fluctuations and the factors that influence them, interest rates as an important economic variable, and the interrelation of interest rates and stock returns. In specific, the thesis provides empirical research which examines the relationship between interest rates and stock returns in the Austrian market for the period of October 2004 to August 2014. The empirical part includes an analysis of the effects of six interest rates on stock indices changes in Austria. The research provides empirical evidence of the presence of a positive linear relationship between several interest rates and Austrian stock returns. The explanatory power of regression models increases after adding a market variable. The difference in interest rate sensitivity of different industries is confirmed. The results of this research are in line with the results of previous studies.*****It is accepted that stock returns are influenced by numerous economic and fundamental factors. This masters thesis aims to investigate the influence of economic factors such as interest rate on stock returns. The thesis explores the theoretical aspects of stock return fluctuations and the factors that influence them, interest rates as an important economic variable, and the interrelation of interest rates and stock returns. In specific, the thesis provides empirical research which examines the relationship between interest rates and stock returns in the Austrian market for the period of October 2004 to August 2014. The empirical part includes an analysis of the effects of six interest rates on stock indices changes in Austria. The research provides empirical evidence of the presence of a positive linear relationship between several interest rates and Austrian stock returns. The explanatory power of regression models increases after adding a market variable. The difference in interest rate sensitivity of different industries is confirmed. The results of this research are in line with the results of previous studies.
Author: Ronald MacDonald
Publisher: Psychology Press
ISBN: 0415125510
Category : Foreign exchange
Languages : en
Pages : 465
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Book Description
This book examines the influence of fiscal policy on exchange rates, recent development in the econometric modelling of exchange rates, and exchange rate modelling for developing countries.
Author: Shigeyuki Hamori
Publisher: Springer Science & Business Media
ISBN: 1441992081
Category : Business & Economics
Languages : en
Pages : 140
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Book Description
An Empirical Investigation of Stock Markets: The CCF Approach attempts to make an empirical contribution to the literature on the movements of stock prices in major economies, i.e. Germany, Japan, the UK and the USA. Specifically, the cross-correlation function (CCF) approach is used to analyze the stock market. This volume provides some empirical evidence regarding the economic linkages among a group of different countries. Chapter 2 and Chapter 3 analyze the international linkage of stock prices among Germany, Japan, the UK and the USA. Chapter 2 applies the standard approach, whereas Chapter 3 uses the CCF approach. Chapter 4 analyzes the relationship between stock prices and exchange rates. Chapter 5 analyzes the relationship among stock prices, exchange rates, and real economic activities. Chapter 6 summarizes the main results obtained in each chapter and comments on the possible directions of future research.
Author: Jagdeep S. Bhandari
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 100
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Book Description
This paper investigates linkages between stock markets in seven industrialized countries since 1974. Empirical evidence shows that both nominal and real stock prices (and returns) are strongly positively correlated across countries, and that nominal exchange rate changes do not have systematic effects on nominal stock prices. A two-country theoretical model is developed and an attempt is made to reconcile the empirical findings with the properties of this model. Independent evidence on the main sources of shocks is used to argue that the time-varying correlation in the data can be reconciled with the predictions of the theory.
Author: Charles Engel
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 37
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Book Description
The well-known uncovered interest parity puzzle arises from the empirical regularity that, among developed country pairs, the high interest rate country tends to have high expected returns on its short term assets. At the same time, another strand of the literature has documented that high real interest rate countries tend to have currencies that are strong in real terms -- indeed, stronger than can be accounted for by the path of expected real interest differentials under uncovered interest parity. These two strands -- one concerning short-run expected changes and the other concerning the level of the real exchange rate -- have apparently contradictory implications for the relationship of the foreign exchange risk premium and interest-rate differentials. This paper documents the puzzle, and shows that existing models appear unable to account for both empirical findings. The features of a model that might reconcile the findings are discussed.
