The determinants of the dynamic correlation between foreign exchange and equity markets: Cross-Country comparisons

Mulanga Tshikalange and Lumengo Bonga-Bonga

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the factors driving the exchange rate-stock return nexus and compares developed and emerging countries. The paper uses a MDCC-GJR-GARCH model to capture the correlation between exchange rate and stock return in 20 randomly selected emerging economies and 23 developed economies for the period 2011-2021. In addition, a dynamic panel model is employed to test the significance of the explanatory variables, that is, VIX, Market Capitalisation to GDP, (RINT), and Global Growth. The empirical results revealed that the level of development matters, developed countries’ correlations are mainly influenced by VIX, Global Growth, and Market Capitalisation to GDP variables whereas emerging markets are driven by VIX and RINT. The drivers in both country groups represent both global and local factors. The findings of this research are important to international portfolio investors when diversifying their investment portfolios and to policymakers

Keywords: Dynamic correlation; exchange rate; equity returns; developed and emerging economies. (search for similar items in EconPapers)
JEL-codes: C1 F31 G1 (search for similar items in EconPapers)
Date: 2023-08-28
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/118401/1/mpra-mulanga.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:118401

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().