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Assessing Euro crises from a time varying international CAPM approach

Richard T. Baillie and Dooyeon Cho

Journal of Empirical Finance, 2016, vol. 39, issue PB, 197-208

Abstract: This paper initially reviews the current empirical literature on the euro exchange rate. We consider the relationship between the euro and other floating currencies in terms of excess returns on bond markets and also the relationship between the euro–dollar and the US and European equity markets. One novelty in the paper is to consider the variation in the euro–dollar rate from an international capital asset pricing model (CAPM) perspective. The second new innovation is to use a kernel weighted time varying parameter regression approach which allows structural parameters and risk premium terms to evolve over time. We find evidence that the euro–dollar rate is substantially influenced by equity markets in the US and in the Eurozone.

Keywords: Euro–US dollar exchange rate; International CAPM with factors; Kernel weighted time-varying parameter regression (search for similar items in EconPapers)
JEL-codes: C22 F31 G01 G15 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.jempfin.2016.03.005

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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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