Hartmann, Daniel and Pierdzioch, Christian (2006): Nonlinear Links between Stock Returns and Exchange Rate Movements.
Download (93Kb) | Preview
Empirical evidence suggests that the link between exchange rate movements and stock returns may be nonlinear. This evidence could reflect fundamental economic effects like, for example, transaction costs in international goods market arbitrage. It could also reflect market inefficiencies if investors could exploit the nonlinearity to systematically improve the performance of simple trading rules. Using monthly data for major North-American and European industrial countries for the period 1973-2006, we found that it would have been difficult for an investor to use information on nonlinearities to improve the performance of a simple trading rule based on out-of-sample forecasts of stock returns.
|Item Type:||MPRA Paper|
|Original Title:||Nonlinear Links between Stock Returns and Exchange Rate Movements|
|Keywords:||Stock returns; exchange rate movements; nonlinearities|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods; Simulation Methods
F - International Economics > F3 - International Finance > F37 - International Finance Forecasting and Simulation: Models and Applications
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||Daniel Hartmann|
|Date Deposited:||23. Oct 2006|
|Last Modified:||14. Feb 2013 00:42|
Adler, M., Dumas, B., 1984. Exposure to currency risk: definition and measurement. Financial Management 13, 41-50.
Baldwin, R., Lyons, R.K., 1994. Exchange rate hysteresis? Large versus small policy misalignments. European Economic Review 38, 1-22.
Bartram, S.M., 2004. Linear and nonlinear foreign exchange rate exposures of German nonfinancial corporations. Journal of International Money and Finance 23, 673-699.
Bank for International Settlements, 2006. BIS effective exchange rate indices. Downloaded in September 2006 [http://www.bis.org/statistics/eer/index.htm].
Chen, N.F., Roll, R., Ross, S.A., 1986. Economic forces and the stock market. Journal of Business 59, 383-403.
Cumby, E., Modest, D., 1987. Testing for market timing ability: a framework for evaluation. Journal of Financial Economics 25, 169-189.
Di Iorio, A., Faff, R., 2000. An analysis of asymmetry in foreign currency exposure of the Australian equities market. Journal of Multinational Financial Management 10, 133-159.
Griffin, J.M., Stulz, R.M., 2001. International competition and exchange rate shocks: a cross-country industry analysis of stock returns. Review of Financial Studies 14, 215-241.
Jorion, P., 1990. The exchange-rate exposure of US multinationals. Journal of Business 63, 331-345.
Kanas, A., 1997. Is economic exposure asymmetric between long-run depreciations and appreciations? Testing using cointegration analysis. Journal of Multinational Financial Management 7, 27-42.
Krugman, P., 1989. The case for stabilizing exchange rates. Oxford Review of Economic Policy 5, 61-72.
Pesaran, M.H., Timmermann, A., 1992. A simple nonparametric test of predictive performance. Journal of Business and Economic Statistics 10, 461-465.
Pesaran, M.H., Timmermann, A., 1995. The robustness and economic significance of predictability of stock returns. Journal of Finance 50, 1201-1228.
Pesaran, M.H., Timmermann, A., 2000. A recursive modelling approach to predicting UK stock returns. Economic Journal 110, 159-191.
Rapach, D.E., Wohar, M.E., Rangvid, J., 2005. Macro variables and international stock return predictability. International Journal of Forecasting 21, 137-166.
Sharpe, W.F., 1966. Mutual fund performance. Journal of Business 39, 119-138.
Shiller, R.J., 1984. Stock prices and social dynamics. Brookings Papers on Economic Activity 2, 457–498.
Taylor, M.P., Peel, D.A., 2000. Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals. Journal of International Money and Finance 19, 33-53.
Taylor, M.P., Peel, D.A., Sarno, L., 2001. Nonlinear mean-reversion in real exchange rates: toward a solution to the purchasing power parity puzzles. International Economic Review 42, 1015-1042.
Available Versions of this Item
- Nonlinear Links between Stock Returns and Exchange Rate Movements. (deposited 23. Oct 2006) [Currently Displayed]