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1 – 10 of over 25000The concept of co-movement has witnessed a resurgence in the international finance literature in recent years after the black swan events. This might be due to a renewed focus on…
Abstract
Purpose
The concept of co-movement has witnessed a resurgence in the international finance literature in recent years after the black swan events. This might be due to a renewed focus on globalization and financial market integration in the world over. The purpose of this paper is to examine the dynamic linkages in the foreign exchange market resulting from recent globalization and financial market integration in Africa.
Design/methodology/approach
A conceptual framework was adapted from the extant literature and was used as the basis of modeling foreign exchange market in Africa. This paper adopts a quantitative research approach and opted for dynamic panel data analysis to empirically unearth the determinants of foreign exchange market co-movement.
Findings
It is interesting to note that exchange rate co-movements were externally determined. Robust support was found for trade intensity, competition and world interest rate on foreign exchange rates co-movement, but regional interest rate differential decreased it. These findings clearly demonstrate the level of financial development and challenges that sometimes exist in exchange rate policy implementation by policy makers in Africa.
Research limitations/implications
Future research might incorporate bilateral investment into the model of exchange rate correlation.
Originality/value
Studies focussing on simultaneous consideration of intensity, trade competition and capital account openness to exchange rate correlations in the contexts of Africa are almost non-existent, and this study makes an important contribution in not only addressing this imbalance but also more importantly improving the relatively parsimonious literature on foreign exchange co-movement.
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Charles K.D. Adjasi, Nicholas B. Biekpe and Kofi A. Osei
The paper aims to investigate the relationship between stock prices and exchange rate movement in seven African countries.
Abstract
Purpose
The paper aims to investigate the relationship between stock prices and exchange rate movement in seven African countries.
Design/methodology/approach
It uses vector autoregressive (VAR) cointegration and impulse response analysis to determine the long‐ and short‐run linkages between stock prices and exchange rates.
Findings
Cointegration analyses indicate a long‐run relationship between stock prices and the exchange rate in Tunisia, where exchange rate depreciation drives down stock prices. A short‐run error‐correction model also shows similar results. Impulse response analyses for other countries show that stock returns in Ghana, Kenya, Mauritius and Nigeria reduce when induced by exchange rate shocks but increase in Egypt and South Africa. Shocks induced by either stock prices or the exchange rate are more protracted in Ghana, Kenya, Mauritius and Nigeria than in South Africa and Egypt.
Originality/value
This is one of the few studies on Africa which tests for long‐run dynamics and impulse response shock dynamics within a VAR framework. Again unlike other studies it also concentrates on more countries in the sample.
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The assignment of targets to instruments in developing countries cannot satisfactorily follow any simple universal rule. Which approach is appropriate is influenced by whether the…
Abstract
The assignment of targets to instruments in developing countries cannot satisfactorily follow any simple universal rule. Which approach is appropriate is influenced by whether the economy is dominated by primary exports, by the importance of the domestic bond market and bank credit, by the extent of existing restriction in foreign exchange and financial markets, by the presence or absence of persistent high inflation, and by the existence or non‐existence of an active international market in the country's currency. Eighteen observations and maxims on stabilisation policy are tentatively drawn (pp. 64–8) from the material reviewed, and the maxims are partly summarised (pp. 69–71) in a schematic assignment, with variations, of targets to instruments.
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Kanchana Senanayake Amarasingha Appuhamilage and Ahmed Abdulhusain Ali Alhayky
The purpose of this paper is to examine empirically the effects of exchange rate movements on trade performance with reference to the Sri Lanka‐China trade relationship over the…
Abstract
Purpose
The purpose of this paper is to examine empirically the effects of exchange rate movements on trade performance with reference to the Sri Lanka‐China trade relationship over the quarterly period from 1993 to 2007.
Design/methodology/approach
This paper tests this condition for the trade between Sri Lanka and China in two steps. First, it investigates the exchange rate movements on Sri Lanka's aggregate exports and imports between China using selected variables such as the real bilateral exchange rate change, the change in income and the exchange rate volatility. Second, this study constructs a panel regression model using Sri Lanka's sectoral exports and imports between China and tests whether exchange rate movements have detrimental effects on sectoral trade.
Findings
The main finding is that bilateral exchange rate changes and exchange rate volatility do play an active role on trade, while income growth changes have less influence in determining the total exports and imports between two countries. The analysis of data shows that changes in real bilateral exchange rate, income and exchange rate volatility are playing a major role in determining sectoral exports and imports between Sri Lanka and China. Therefore, the findings suggest that the movements of exchange rate between these two countries do have significant effects on total trade as well as sectoral trade between Sri Lanka and China.
The aim of this paper is threefold: (1) to develop a new measure of investor sentiment rational (ISR) of developing countries by applying principal component analysis (PCA), (2…
Abstract
Purpose
The aim of this paper is threefold: (1) to develop a new measure of investor sentiment rational (ISR) of developing countries by applying principal component analysis (PCA), (2) to investigate co-movements between the ten developing stock markets, the sentiment investor's, exchange rates and geopolitical risk (GPR) during Russian invasion of Ukraine in 2022, (3) to explore the key factors that might affect exchange market and capital market before and mainly during Russia–Ukraine war period.
Design/methodology/approach
The wavelet approach and the multivariate wavelet coherence (MWC) are applied to detect the co-movements on daily data from August 2019 to December 2022. Value-at-risk (VaR) and conditional value-at-risk (CVaR) are used to assess the systemic risks of exchange rate market and stock market return in the developing market.
Findings
Results of this study reveal (1) strong interdependence between GPR, investor sentiment rational (ISR), stock market index and exchange rate in short- and long-terms in most countries, as inferred from (WTC) analysis. (2) There is evidence of strong short-term co-movements between ISR and exchange rates, with ISR leading. (3) Multivariate coherency shows strong contributions of ISR and GPR index to stock market index and exchange rate returns. The findings signal the attractiveness of the Vietnamese dong, Malaysian ringgits and Tunisian dinar as a hedge for currency portfolios against GPR. The authors detect a positive connectedness in the short term between all pairs of the variables analyzed in most countries. (4) Both foreign exchange and equity markets are exposed to higher levels of systemic risk in the period of the Russian invasion of Ukraine.
Originality/value
This study provides information that supports investors, regulators and executive managers in developing countries. The impact of sentiment investor with GPR intensified the co-movements of stocks market and exchange market during 2021–2022, which overlaps with period of the Russian invasion of Ukraine.
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Marc W. Simpson and Sanjay Ramchander
This paper shows that the University of Michigan’s ”Survey of Consumers“ can be useful in predicting the direction of change in five U.S. dollar exchange rates. The explanatory…
Abstract
This paper shows that the University of Michigan’s ”Survey of Consumers“ can be useful in predicting the direction of change in five U.S. dollar exchange rates. The explanatory power, however, is contingent on the particular survey question employed and the forecast horizon under consideration. The study finds that the survey question regarding car purchases does especially well in predicting the future direction of exchange rate movements. Furthermore, the results generally indicate that the survey is more useful when making distant (i.e., 12‐month ahead) currency forecast than for making near term (i.e., 3‐month and 6‐month ahead) predictions.
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Alex J.D. Dawson and William H. Rodney
The use of financial risk management techniques in the form ofexchange‐rate hedging is widespread in the international businesscommunity, because their use avoids losses owing to…
Abstract
The use of financial risk management techniques in the form of exchange‐rate hedging is widespread in the international business community, because their use avoids losses owing to volatile exchange‐rate movements. Identifies the current limited use of such risk‐hedging techniques in the commercial property market, and considers potential benefits to international property transactions.
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Norway is a small nation state on the northernmost coastline of Western Europe, integrated in the Western world economy. For centuries Norway's integration in the world economy…
Abstract
Norway is a small nation state on the northernmost coastline of Western Europe, integrated in the Western world economy. For centuries Norway's integration in the world economy had been based on exports of raw materials such as fish and timber, as well as shipping services. In the early 20th century, furnace-based metals (made possible by cheap hydropower) were added to this export basket. Just as the world economy entered an increasingly unstable phase in 1970s, another natural resource was discovered in Norway: petroleum – that is, oil and natural gas from the North Sea. This chapter analyses the challenges and possibilities inherent in the Norwegian strategy of developing an oil economy in a world economic situation influenced by new and stronger forms of international integration through the four decades between 1970 and 2010.
Given the difficulties in finding significant exchange rate exposure in the extant literature, this paper attempts to resolve the so-called “exposure puzzle” by investigating…
Abstract
Purpose
Given the difficulties in finding significant exchange rate exposure in the extant literature, this paper attempts to resolve the so-called “exposure puzzle” by investigating whether currency movements have any significant impact on international industry returns.
Design/methodology/approach
This paper utilizes the multivariate Generalized AutoRegressive Conditional Heteroskedasticity (MGARCH) methodology to estimate both symmetric and asymmetric exchange rate exposures for each industry common across 12 countries simultaneously.
Findings
The empirical results show that exchange rate exposure is not only statistically significant but also economically important based on the estimation of an asymmetric three-factor exposure model using MGARCH methodology. This is an extremely important finding as it suggests that the “exposure puzzle” may not be a puzzle at all once a better methodology is utilized in the estimation.
Research limitations/implications
Because this study tries to resolve the exchange rate exposure puzzle by focusing on whether exchange rate movements affect ex-post returns as opposed to ex ante expected returns and given the significant exposures with respect to different risk factors found in the study, it is interesting to see if any of these risk factors commands a risk premium. In other words, a natural extension of this study is to test whether any of these risk factors is priced in international industry returns.
Practical implications
The findings of the study have interesting implications for international investors who would like to diversify their portfolios across different industries and are concerned about whether the unexpected movements in the bilateral exchange rates will affect their portfolio returns in addition to its interest rate and world market risk exposures.
Originality/value
The study utilizes the MGARCH methodology, which has not been fully exploited in the exchange rate exposure literature.
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Alexandra Lai and Oana Secrieru
We examine the impact of multinational firms (MNEs) on exchange rate pass-through when an MNE engages in Cournot competition with domestic and foreign rivals. The MNE can locate…
Abstract
We examine the impact of multinational firms (MNEs) on exchange rate pass-through when an MNE engages in Cournot competition with domestic and foreign rivals. The MNE can locate its production for the foreign market domestically — intra-firm trade (IT) — or in the foreign country — international production (IP). In addition to incomplete exchange rate pass-through, we show that an MNE increases the sensitivity of domestic market prices and reduces the sensitivity of foreign market prices to exchange rate movements. Finally, IT prices are more sensitive to exchange rate movements than their IP counterparts and react in the opposite direction.