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The Effects of Exchange-Rate Exposures on Equity Asset Markets

Author

Listed:
  • Jumah, Adusei

    (Department of Economics and Finance, Institute for Advanced Studies)

  • Kunst, Robert M.

    (Department of Economics and Finance, Institute for Advanced Studies)

Abstract
This paper analyzes the relationship between stock returns and exchange rate changes in international markets and examines how well exchange rate volatility explains movements in stock market returns. The model-based predictions are evaluated on several cost functions. Results from such analysis can be used to appraise the need for hedging. Of the three examined stock indexes, the FTSE was found to be the only robust index, while the S&P 500 and the Nikkei indexes reacted to the dollar/yen exchange rates. The dollaer/yen rate also improved risk prediction for the Standard&Poor futures, while the gains in forecasting from using bivariate models remained small otherwise.

Suggested Citation

  • Jumah, Adusei & Kunst, Robert M., 2001. "The Effects of Exchange-Rate Exposures on Equity Asset Markets," Economics Series 94, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:94
    as

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    File URL: https://irihs.ihs.ac.at/id/eprint/1322
    File Function: First version, 2001
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    References listed on IDEAS

    as
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    6. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
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    8. Khoo, Andrew, 1994. "Estimation of foreign exchange exposure: an application to mining companies in Australia," Journal of International Money and Finance, Elsevier, vol. 13(3), pages 342-363, June.
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Chen Jo-Hui & Diaz John Francis T., 2021. "Application of grey relational analysis and artificial neural networks on currency exchange-traded notes (ETNs)," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 25(2), pages 1-17, April.

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    More about this item

    Keywords

    Exchange rate futures; Index futures; Conditional heteroskedasticity; Forecasting;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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