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

The IUP Journal of Financial Risk Management, Vol. XIII, No. 1, March 2016, pp. 7-27

Posted: 11 Aug 2016

See all articles by Shekhar Mishra

Shekhar Mishra

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

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Date Written: March 2016

Abstract

The present paper examines the dynamic interaction between stock returns and exchange rate changes in the emerging economies of BRIC (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 using 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 adherence of markets to portfolio balance effect. However, the coefficients can vary according to changing market conditions.

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 2016). The IUP Journal of Financial Risk Management, Vol. XIII, No. 1, March 2016, pp. 7-27, Available at SSRN: https://ssrn.com/abstract=2820886

Shekhar Mishra (Contact Author)

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

Bidyanagar
Mahura, Janla
Bhubaneswar
India

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