On the relationship between exchange rates and equity

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1、Int.Fin.Markets,Inst.andMoney21(2011)550–559ContentslistsavailableatScienceDirectJournalofInternationalFinancialMarkets,Institutions&Moneyjournalhomepage:www.elsevier.com/locate/intfinOntherelationshipbetweenexchangeratesandequityreturns:AnewapproachGeorgios∗KatechosFinanceandAccountingResear

2、chUnit,UniversityofHertfordshire,BusinessSchool,deHavillandCampus,Hatfield,HertfordshireAL109AB,UKarticleinfoabstractArticlehistory:ThispaperemploysanewapproachinordertoinvestigatetheReceived19January2011underlyingrelationshipbetweenstockmarketsandexchangerates.Accepted17March2011CurrentAvaila

3、bleonline2April2011approachessuggestthattherelativeequitymarketperfor-manceoftwocountriesislinkedtotheirexchangerate.Incontrast,thisJELstudyproposesanalternativeapproachwhereoneglobalvari-classification:ableF31–globalequitymarketreturns–isbelievedtohaveaneffectonG15exchangerates,withtherelativ

4、einterestratelevelofacurrencydeterminingthesignoftherelationship.OurempiricalfindingsKeywords:suggestthatexchangeratesandglobalstockmarketreturnsareForeignexchangestronglylinked.ThevalueofcurrencieswithhigherinterestratesExchangeratesispositivelyrelatedwithglobalequityreturns,whereasthevalueSt

5、ockreturnsofcurrencieswithlowerinterestratesisnegativelyrelatedwithInterestparityglobalequityreturns.Riskpremia©2011ElsevierB.V.Allrightsreserved.1.IntroductionTheunderstandingofthemechanismdeterminingexchangeratesisstillanunsolvedpuzzleinthefieldofinternationaleconomics.AccordingtoBjonnesandR

6、ime(2005:572),‘Afterextensiveresearchovermanyyearsfewstoneshavebeenleftunturnedwhenitcomestoinvestigatingtheshort-termexplanatorypowerofmacroeconomicvariables’.However,mostofthoseattemptshavenotachievedthedesiredresults.StudiesofMeeseandRogoff(1983),Frankel(1984),andBoughton(1987)suggestthatn

7、omodelissuccessfulinexplainingexchangeratefluctuations.Thisisparticularlyvalidinregardstoshorttermexchangeratemovements.FrankelandRose(1995)reportthatno∗Tel.:+4401707285532;fax:+4401707285455;mobile:+4407906617955.E-mailaddress:g.1.katechos@he