Are There Asymmetries in the Relationship Between Exchange Rate Fluctuations and Stock Market Volatility in Pacific Basin Countries?

Nabil Maghrebi (), Mark Holmes () and Eric Pentecost
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Nabil Maghrebi: Faculty of Economics, Wakayama University, Sakaedani 930, Wakayama 640-8510, Japan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2006, vol. 09, issue 02, 229-256

Abstract: This paper examines asymmetries in the dynamic relationship between foreign exchange fluctuations and stock market volatility in Pacific basin countries. The methodology is based on a dynamic covariance modelling that accounts for leverage effects and the asymmetric impact of currency fluctuations. There is evidence that appreciations are more conducive to lower volatility in currency markets than depreciations of equal magnitude. Market volatility tends to beceteris paribus, more sensitive to bad news about equity than good news and more responsive to currency depreciations than appreciations. The results also suggest that bad news about equity accompanied with currency depreciations are likely to generate higher volatility in currency markets and have the potential of affecting the significance of leverage effects in stock markets.

Keywords: Asymmetric effects; stock market volatility; foreign exchange fluctuations; multivariate GARCH (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (9)

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DOI: 10.1142/S0219091506000719

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