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Exchange rate movements and stock market returns in a regime-switching environment: Evidence for BRICS countries

Walid Chkili and Duc Khuong Nguyen

Research in International Business and Finance, 2014, vol. 31, issue C, 46-56

Abstract: We use a regime-switching model approach to investigate the dynamic linkages between the exchange rates and stock market returns for the BRICS countries (Brazil, Russia, India, China and South Africa). The univariate analysis indicates that stock returns of the BRICS countries evolve according to two different regimes: a low volatility regime and a high volatility regime. On the other hand, our evidence from Markov switching VAR models suggests that stock markets have more influence on exchange rates during both calm and turbulent periods. These empirical insights have important implications for portfolio investments and currency risk hedging.

Keywords: Stock markets; Foreign exchange rate; BRICS countries; Markov switching VAR (search for similar items in EconPapers)
JEL-codes: C22 G15 F31 (search for similar items in EconPapers)
Date: 2014
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