Dynamic Correlation between Stock Returns and Exchange Rate and its Dependence on the Conditional Volatilities – The Case of Several Eastern European Countries

14 Pages Posted: 28 Dec 2016

See all articles by Dejan Živkov

Dejan Živkov

Novi Sad Business School

Jovan Njegić

Novi Sad Business School

Jasmina Pavlović

Novi Sad Business School

Date Written: December 2016

Abstract

The objective of the paper is to determine whether the linkage between stock returns and exchange rates in several Eastern European countries was in accordance with the flow oriented model or the portfolio‐balance approach. The dynamic interdependence between exchange rate and stock returns is determined using the Dynamic Conditional Correlation (DCC) framework. The results pointed to a negative dynamic correlation which is in line with portfolio‐balance approach. Rolling regression revealed that conditional correlation was affected primarily by conditional volatility of currency, while the impact of stock returns volatility was negligible.

Keywords: Dynamic Conditional Correlation; East European markets; exchange rate; stocks; rolling regression

JEL Classification: C51, F31, G12

Suggested Citation

Živkov, Dejan and Njegić, Jovan and Pavlović, Jasmina, Dynamic Correlation between Stock Returns and Exchange Rate and its Dependence on the Conditional Volatilities – The Case of Several Eastern European Countries (December 2016). Bulletin of Economic Research, Vol. 68, Issue S1, pp. 28-41, 2016, Available at SSRN: https://ssrn.com/abstract=2890644 or http://dx.doi.org/10.1111/boer.12059

Dejan Živkov (Contact Author)

Novi Sad Business School

Vladimira Perica-Valtera 4
Bulevar kralja Petra I 38
Novi Sad, 21000
Serbia

Jovan Njegić

Novi Sad Business School ( email )

Vladimira Perica-Valtera 4
Bulevar kralja Petra I 38
Novi Sad, 21000
Serbia

Jasmina Pavlović

Novi Sad Business School

Vladimira Perica-Valtera 4
Bulevar kralja Petra I 38
Novi Sad, 21000
Serbia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
303
PlumX Metrics