Time-Varying Currency Betas: Evidence from Developed and Emerging Markets

Prabhath Jayasinghe and Albert Tsui
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Prabhath Jayasinghe: Singapore Centre for Applied and Policy Economics

Finance Working Papers from East Asian Bureau of Economic Research

Abstract: This paper examines the conditional time-varying currency betas from five developed markets and four emerging markets. A trivariate BEKK-GARCH-in-mean model is used to estimate the timevarying conditional variance and covariance of returns of stock index, the world market portfolio and changes in bilateral exchange rate between the US dollar and the local currency of each country. It is found that currency betas are more volatile than those of the world market betas. Currency betas in emerging markets are more volatile than those in developed markets. Moreover, we find evidence of long-memory in currency betas. The usefulness of time-varying currency betas are illustrated by two applications.

Keywords: time-varying currency betas; multivariate GARCH-M models; international CAPM; fractionally integrated processes; stochastic dominance (search for similar items in EconPapers)
JEL-codes: C22 F31 F37 G12 G15 (search for similar items in EconPapers)
Date: 2009-01
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