A Test of Hedging Alternatives for the US Currency and the US Stock Market
23 Pages Posted: 3 Nov 2011 Last revised: 5 Nov 2013
Date Written: October 28, 2013
This paper examines the degree of correlation, and possible causation, between the US Dollar (against the Euro and the British Pound) and the US equity market indexes (the S&P 500 and the NASDAQ composite). The information utilized in this study is the 14 year period beginning in January 1999 and ending in December 2012. The purpose of this exercise is to judge the potential effectiveness of hedging against declines in the (major) US stock market indexes utilizing the dollar, or the reverse, focusing particularly on the financial crisis period encompassing the latter part of 2007 through early 2009. A currency hedge that is long on the Euro or Pound seems to provide protection against severe US stock market declines.
Keywords: US Dollar, Euro, British Pound, volatility, hedging, S&P500, NASDAQ, equity markets, currency markets
JEL Classification: F31, G15
Suggested Citation: Suggested Citation