The Quantile Regression Approach to Analysis of Dynamic Interaction between Exchange Rate and Stock Returns in Emerging Markets: Case of BRIC Nations

Mishra.S. (2016), “The Quantile Regression Approach to Analysis of Dynamic Interaction between Exchange Rate and Stock Returns in Emerging Economies: Case of BRIC Nations”, The IUP Journal of Financial Risk Management, Vol.13 (1), pp- 7-27

Posted: 20 May 2016

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Shekhar Mishra

Department of Business Management, C.V.Raman Group of Institutions.

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Date Written: March 20, 2016

Abstract

The present paper examines the dynamic interaction between stock returns and exchange rate changes in the emerging economies of BRIC nations (Brazil, Russia, India and China). The paper tries to analyze the Portfolio Balance effect according to which the two variables are expected to be negatively related. Since under non normality conditions and heterogeneous conditional distribution, estimation under Ordinary Least Squares (OLS) method may be biased and not much favorable, Quantile Regression Model is adopted to analyze the relationship between stock returns and exchange rate changes. The estimation shows similar patterns with significantly negative coefficients obtained from different quantile functions for Brazil, Russia and India. However for China the coefficients are not so significantly negative. The negative coefficients indicate towards adherence of markets to Portfolio Balance effect. However the coefficients can vary according to changing market conditions.

Keywords: Stock Returns, Exchange Rate, BRIC nations, Portfolio Balance Effect, Quantile Regression

JEL Classification: G15, C31

Suggested Citation

Mishra, Shekhar, The Quantile Regression Approach to Analysis of Dynamic Interaction between Exchange Rate and Stock Returns in Emerging Markets: Case of BRIC Nations (March 20, 2016). Mishra.S. (2016), “The Quantile Regression Approach to Analysis of Dynamic Interaction between Exchange Rate and Stock Returns in Emerging Economies: Case of BRIC Nations”, The IUP Journal of Financial Risk Management, Vol.13 (1), pp- 7-27, Available at SSRN: https://ssrn.com/abstract=2782318

Shekhar Mishra (Contact Author)

Department of Business Management, C.V.Raman Group of Institutions. ( email )

Bidyanagar
Mahura, Janla
Bhubaneswar
India

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