Return-Volatility Linkages in the International Equity and Currency Markets

Bank of Finland Discussion Paper No. 9/2002

39 Pages Posted: 23 Jul 2002

See all articles by Bill B. Francis

Bill B. Francis

University of South Florida - College of Business Administration

Delroy M. Hunter

University of South Florida

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Date Written: May 27, 2002

Abstract

This paper, which is motivated by the literature on international asset pricing and recent work on exchange rate determination, investigates dynamic relationships between major currency and equity markets. Using a multivariate GARCH framework, we examine conditional cross-autocorrelations between pairs of national equity markets and related exchange rates. This provides a parsimonious way of testing mean-volatility relationships in currency and equity markets and re-examining the robustness of relationships between equity markets, while controlling for exchange rate effects. We find that the relationship between currency and equity markets is bi-directional, significant, persistent, and independent of the relationship strictly between equity markets, and that it is better captured by the conditional second moments.

Keywords: international asset pricing, exchange rate determination, equity markets, relationships between currency and equity markets

JEL Classification: G12, G14, G15, F31

Suggested Citation

Francis, Bill B. and Hunter, Delroy M. and Hasan, Iftekhar, Return-Volatility Linkages in the International Equity and Currency Markets (May 27, 2002). Bank of Finland Discussion Paper No. 9/2002, Available at SSRN: https://ssrn.com/abstract=317939 or http://dx.doi.org/10.2139/ssrn.317939

Bill B. Francis (Contact Author)

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Dept. of Finance
Tampa, FL 33620-5500
United States
813-974-6300 (Phone)
813-974-3030 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/finance/facult

Delroy M. Hunter

University of South Florida ( email )

Dept of Finance, Muma College of Business
4202 E. Fowler Ave, BSN3403
Tampa, FL 33620
United States
(813) 843-2085 (Phone)
(813) 974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/hunter-delroy.aspx

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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