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Article
Publication date: 14 November 2016

Emmanuel Carsamer

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…

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.

Details

Journal of Economic Studies, vol. 43 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 20 September 2011

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.

Details

African Journal of Economic and Management Studies, vol. 2 no. 2
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 1 February 1988

Anthony Clunies Ross

The assignment of targets to instruments in developing countries cannot satisfactorily follow any simple universal rule. Which approach is appropriate is influenced by…

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.

Details

Journal of Economic Studies, vol. 15 no. 2
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 5 October 2010

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…

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.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 3 no. 3
Type: Research Article
ISSN: 1754-4408

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Article
Publication date: 22 April 2004

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…

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.

Details

American Journal of Business, vol. 19 no. 1
Type: Research Article
ISSN: 1935-5181

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Article
Publication date: 1 December 1994

Alex J.D. Dawson and William H. Rodney

The use of financial risk management techniques in the form ofexchangerate hedging is widespread in the international businesscommunity, because their use avoids losses…

Abstract

The use of financial risk management techniques in the form of exchangerate hedging is widespread in the international business community, because their use avoids losses owing to volatile exchangerate movements. Identifies the current limited use of such risk‐hedging techniques in the commercial property market, and considers potential benefits to international property transactions.

Details

Journal of Property Finance, vol. 5 no. 4
Type: Research Article
ISSN: 0958-868X

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Article
Publication date: 9 August 2021

Chu-Sheng Tai

It has been increasingly recognized that exchange rate changes affect the cash flow and the value of firms. Existing studies on exchange rate exposure do not have much…

Abstract

Purpose

It has been increasingly recognized that exchange rate changes affect the cash flow and the value of firms. Existing studies on exchange rate exposure do not have much success in finding significant exposure, and the failure to find this relationship empirically has been termed “exposure puzzle”. Motivated by the limited success in detecting significant exchange rate exposure in the extant literature, China's exchange rate regime reform in 2005, the increasing role of China's stock market played in the global financial market and its attractiveness in international portfolio diversification, the purpose of this paper is to resolve the so-called “exposure puzzle” and thus make a contribution to the literature by investigating whether the renminbi (RMB) exchange rate movements have any significant impact on China's stock market from the perspective of US investors who may want to diversify their portfolios with Chinese stocks.

Design/methodology/approach

Since previous studies which rely heavily on the standard Ordinary Least Squares (OLS) or seemingly unrelated regression (SUR) method of estimation with the assumption of constant variance of firm's or industry's returns do not have much success in detecting significant exchange rate exposure, in this study, we apply an asymmetric GARCH(1,1) with generalized error distribution (GED) model which takes conditional heteroscedasticity and leptokurtosis of asset returns into account in the estimation of first- and second-moment exchange rate exposure.

Findings

Using weekly data over the period August 10, 2005–January 1, 2020 on 40 Chinese sector stock returns, the authors find strong evidence of first-moment exchange rate exposure. In particular, 65% (26 out of 40) of sectors examined have significant first-moment exposures and 73.08% (19 out of 26) of these significant first-moment exposures are asymmetric. For the second-moment exchange rate exposures, they are less frequently detected with 20% (8 out of 40) significant cases. These results are robust to whether an unorthogonalized or orthogonalized bilateral US dollar (USD)/Chinese Yuan (CNY) exchange rate is used in the estimation.

Research limitations/implications

Because this study concerns only with whether exchange rate movements affect ex post returns as opposed to expected (ex ante) 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 China's stock market.

Practical implications

The findings of the study have interesting implications for US investors who would like to diversify their portfolios with Chinese stocks and are concerned about whether the unexpected movements in CNY will affect their portfolio returns in addition to its local and world market risk exposures.

Originality/value

The study extends previous research on the first- and second-moment exchange rate exposure of Chinese stock returns by utilizing an asymmetric GARCH(1,1) with generalized error distribution (GED) model, which has not been fully exploited in the literature.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 18 October 2011

Lars Mjøset and Ådne Cappelen

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…

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.

Details

The Nordic Varieties of Capitalism
Type: Book
ISBN: 978-0-85724-778-0

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Book part
Publication date: 1 January 2006

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…

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.

Details

Value Creation in Multinational Enterprise
Type: Book
ISBN: 978-1-84950-475-1

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Article
Publication date: 1 February 2011

Longjiang Chen

The paper aims to examine the relationship between changes and volatility of China's Renminbi (RMB) exchange rates and its agricultural export.

Abstract

Purpose

The paper aims to examine the relationship between changes and volatility of China's Renminbi (RMB) exchange rates and its agricultural export.

Design/methodology/approach

A GARCH(1, 1) model is specified to measure the exchange rate volatility and autoregressive distributed lag regression with structural break dummy variables is estimated based on the results of unit root test with structural break.

Findings

The export supply model reveals that the net trade effect of RMB exchange rate movements relies on the comparison of exchange rate level change (appreciation or depreciation) effect and exchange rate risk effect. The empirical examination results, taking China's agricultural exports to Japan as a case, show RMB depreciation against yen will promote export growth while appreciation hinder export, and exchange rate volatility positively stimulates agricultural exports to Japan. However, the effect of exchange rate volatility on the export is much smaller than that of exchange rate level, which leads to a negative net effect to the export.

Originality/value

The constructed model and applied methodology contribute to a better understanding of the relationship between changes and volatility of China's RMB exchange rates and its agricultural export.

Details

China Agricultural Economic Review, vol. 3 no. 1
Type: Research Article
ISSN: 1756-137X

Keywords

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