 Stock market uncertainty and uncovered equity parity deviation: Evidence from AsiaJiYong Jung and Kuk Mo Jung Journal of Asian Economics, 2021, vol. 73, issue C Abstract: Recently, many empirical studies document that a country's stock market performance relative to the US and its local currency units per US dollar tend to move in opposite direction over the short run, also known as the uncovered equity parity (UEP) condition. However, those studies have applied only to advanced economies to date. This study conducted the same tests to a sample of 18 Asian economies. To one's surprise, we found that the UEP condition reverses its sign among Asian currencies. In addition, measures of stock market uncertainty are suggested as a potential driving force behind this UEP reversal for Asian economies. This surprising result suggests that there might be other mechanisms behind the joint dynamics of equity and currency returns than the portfolio rebalancing caused by incomplete foreign exchange risk hedging. The reasoning is that Asian foreign exchange (FX) markets are even more subject to incomplete foreign exchange risk hedging. Thus, one should expect even stronger UEP evidence from Asian currency markets if the portfolio rebalancing mechanism was the only force at play. Keywords: Asian markets; Uncovered equity parity; Exchange rate; Uncertainty (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:73:y:2021:i:c:s1049007820301512 DOI: 10.1016/j.asieco.2020.101271 Access Statistics for this article Journal of Asian Economics is currently edited by C. Wiemer More articles in Journal of Asian Economics from Elsevier |
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