International Equity Index and Currency Futures: Commodity Currencies or Emerging Versus Developed Markets?

Timothy A. Krause and Yiuman Tse

Emerging Markets Finance and Trade, 2018, vol. 54, issue 14, 3294-3311

Abstract: Equity index futures in both emerging and developing markets that are net commodity exporters are strongly linked to their respective currency futures markets. Unconditional correlations among equity and currency futures are the highest for these net basic materials producers in both emerging and developed markets. Granger causality tests also indicate that stock market returns are more strongly related to currency futures returns for commodity-exporting countries. Additionally, conditional correlations among currency and equity futures returns are the strongest for commodity-producing countries in both emerging and developed economies. Volatility spillover analysis provides consistent results. The overall results indicate that the status of a country as a net importer or exporter of raw materials is more important to the relationship between equity and currency futures than whether it is an emerging or developed economy.

Date: 2018
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DOI: 10.1080/1540496X.2017.1377608

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