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1 – 10 of over 8000Muhammad Aftab, Maham Naeem, Muhammad Tahir and Izlin Ismail
Exchange rate volatility is an important factor affecting investors and policymakers. This study aims to examine the impact of uncertainties, in terms of changes in economic…
Abstract
Purpose
Exchange rate volatility is an important factor affecting investors and policymakers. This study aims to examine the impact of uncertainties, in terms of changes in economic policy, monetary policy and global financial markets, on exchange rate volatility.
Design/methodology/approach
The study uses the GARCH (1,1) univariate model to calculate exchange rate volatility. Economic and monetary policy uncertainties are measured using news-based indices, while global financial market volatility is measured using the implied volatility index. Panel autoregressive distributed lag modeling is used to analyze the impact of uncertainty on exchange rate volatility in the short and long run. The sample consists of 26 developed and emerging markets from 2005 to 2020.
Findings
The study finds that economic policy uncertainty significantly increases exchange rate volatility. Similarly, global financial market uncertainty leads to increased exchange rate volatility. The effect of US monetary policy uncertainty reduces exchange rate volatility.
Originality/value
This research contributes to the existing literature on exchange rate fluctuations by examining the impact of uncertainties on exchange rate volatility. The study uses novel news-based indices for measuring economic and monetary policy uncertainties and includes a broader sample of emerging and advanced markets. The findings have important implications for investors and policymakers.
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Vivek Bhargava and Daniel Konku
The authors analyze the relationship between exchange rate fluctuations of a number of major currencies and its impact on US stock market returns, as proxied by the S&P 500. Many…
Abstract
Purpose
The authors analyze the relationship between exchange rate fluctuations of a number of major currencies and its impact on US stock market returns, as proxied by the S&P 500. Many studies have explored this topic since the early 1970s with varied results and with no evidence that clearly explains the relationship between exchange rates and stock market returns. This study takes a different look at this hypothesis and investigates the pairwise relationship between various exchange rates and the United States stock market returns (S&P 500 INDEX) from January 2000 to December 2019.
Design/methodology/approach
The authors test the data for unit roots using Phillip-Perron method. They use Johansen cointegration model to determine whether returns on S&P 500 are integrated with S&P 500. They use the VAR/VECM analysis to test whether there are any interdependencies between exchange rates and stock market return. Finally, they use various GARCH models, including the EGARCH and TGARCH models, to determine whether there exist volatility spillovers from exchange rate fluctuations in various markets to the volatility in the US stock market.
Findings
Using GARCH modeling, the authors find volatility in Australian dollar, Canadian dollar and the euro impact market return, and the volatility of Australian dollars and euro spills over to the volatility of S&P 500. They also find that the spillover is asymmetric for Australian dollars.
Research limitations/implications
One of the limitations could be that the authors use different bivariate GARCH models rather than the MV-GARCH models. For future project(s), they plan to do this analysis from the perspective of a European Union or a British investor and use returns in those markets to see the impact of exchange rates on those markets. It would be interesting to know how the relationship will change during periods of financial crises. This could be achieved by employing structural break methodology.
Originality/value
Many studies have explored the relation between stock market returns and exchange rates since the early 1970s with varied results and with no evidence that clearly explains the relationship between exchange rates and stock market returns. This paper contributes by adding to the existing literature on impact of exchange rate on stock returns and by providing a detailed and different empirical analysis to support the results.
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Mohini Gupta and Sakshi Varshney
The aim the study is to explore the impact of real exchange rate volatility and other macroeconomic variable such as price of import, industrial production and real exchange rate…
Abstract
Purpose
The aim the study is to explore the impact of real exchange rate volatility and other macroeconomic variable such as price of import, industrial production and real exchange rate on 45 import commodities, considering global financial crisis period on India's import from the US. The empirical analysis at disaggregate level of import indicates the existence of both short-run and long-run effect in one-third importing commodities. The results show both positive and negative effect and causality among variables.
Design/methodology/approach
The study uses E-GARCH model to gage the real exchange rate volatility, an autoregressive distributive lag (ARDL) bound test technique to discover the adequate short- and long-run relationships and Toda-Yamamoto causality method to analyze the causality among variables. The study uses the time period from 2002:M09 to 2019:M06.
Findings
The empirical analysis at disaggregate level of import indicates the existence of both short-run and long-run effect in one-third importing commodities. The results show both positive and negative effects and causality among variables.
Practical implications
The finding of the study suggests that macroeconomic variables have significant role and could be important to undertake the small and medium scale industries in policymaking. Government may need to make decision for micro, small and medium enterprises (MSMEs) as their performance can bring change in the trade to compete globally by increasing and controlling the price of the import and defending the domestic competitiveness.
Originality/value
The study uses additional variable namely price of import and includes the global financial crisis period to measure dampening effect on each commodity by using robust econometric technique in context of emerging nation like India.
Bisharat Hussain Chang, Suresh Kumar Oad Rajput, Niaz Ahmed Bhutto and Zahida Abro
Recent literature has shifted to examining whether exchange rate volatility symmetrically or asymmetrically affects the trade flows. This study aims to extend the existing…
Abstract
Purpose
Recent literature has shifted to examining whether exchange rate volatility symmetrically or asymmetrically affects the trade flows. This study aims to extend the existing literature by examining the effects of extremely large to extremely small changes in exchange rate volatility series on the US imports from Brazil, India, Mexico and South Africa.
Design/methodology/approach
For examining the effects of extreme changes, multiple threshold nonlinear autoregressive distributed lag (MTNARDL) model is used and the exchange rate volatility series is divided into quintiles and deciles. It helps to examine the effects of each quintile/decile of exchange rate volatility series on the US imports.
Findings
Findings indicate that the effects of extremely large changes in the exchange rate volatility series significantly differ from the effects of extremely small changes in the exchange rate volatility series on the US imports.
Practical implications
The findings of this study are very important. These findings help to consider the effect of extreme changes before devising policies related to trade flows.
Originality/value
This study mainly focuses on US imports from Brazil, India, Mexico and South Africa. In addition, this study extends the existing literature by using a novel methodology called MTNARDL model.
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Chong Lee‐Lee and Tan Hui‐Boon
The purpose of this study is to examine the factors of exchange rate volatility from the macroeconomic perspective for four neighbouring ASEAN economies.
Abstract
Purpose
The purpose of this study is to examine the factors of exchange rate volatility from the macroeconomic perspective for four neighbouring ASEAN economies.
Design/methodology/approach
This study has scrutinised the link between macroeconomic factors and exchange rate volatility in both the short and the long run by applying econometrics techniques.
Findings
This study further suggests the link between macroeconomic factors and exchange rate volatility in both the short and the long run for the selected economies. The empirical results, however, indicate that a set of common factors seems to influence the exchange rate volatility, whereby the stock market is a great influence commonly found across countries. The Indonesian rupiah seems to be the most sensitive to the innovations in macroeconomic factors, while the Singapore dollar is the least.
Research limitations/implications
The macroeconomic factors are believed to be the forces behind exchange rate volatility through the presumable rigidities of their exchange rates, resulting from the managed float exchange rate system adopted by those countries. Their capital markets are vital in maintaining exchange rate stability, hence suggesting the imperative role of respective authorities and market players in managing a viable capital market.
Originality/value
Little attention has been given to developing countries' experiment with their exchange rate systems due to their presumed rigid volatility. This study adopts a more sophisticated approach in measuring the volatility of the exchange rate and examines the underlying factors of exchange rate volatility instead of the level of exchange rate.
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Mohsen Bahmani‐Oskooee and Scott W. Hegerty
Since the last review article by McKenzie, the literature has experienced a surge in the number of empirical articles. These new contributions, coupled with those that were…
Abstract
Purpose
Since the last review article by McKenzie, the literature has experienced a surge in the number of empirical articles. These new contributions, coupled with those that were overlooked by McKenzie, set the stage for this review. Many of the recent studies have been empirical in nature and these deserve specific attention. Thus, this paper aims to survey and review all of the studies by paying attention to the attributes outlined in the text.
Design/methodology/approach
This paper examines the vast empirical literature, up to 2005, to assess the main trends in modeling and estimating these trade flows at the aggregate, bilateral, and sectoral levels.
Findings
The increase in exchange‐rate volatility since 1973 has had indeterminate effects on international export and import flows. Although it can be assumed that an increase in risk may lead to a reduction in economic activity, the theoretical literature provides justifications for positive or insignificant effects as well. Similar results have been found in empirical tests. While modeling techniques have evolved over time to incorporate new developments in econometric analysis, no single measure of exchange‐rate volatility has dominated the literature.
Originality/value
An argument put forward by the opponents of the floating exchange rates is that such rates introduce uncertainty into the foreign exchange market, which could deter trade flows. However, a theoretical argument is put forward by some to show that uncertainty could also boost trade flows if traders increase their trade volume to offset any decrease in future revenue due to exchange rate volatility. The empirical literature reviewed in this paper supports both views.
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Muhammad Aftab, Zaheer Abbas and Farrukh Nawaz Kayani
The purpose of this paper is to explore the impact of exchange rate volatility at sectoral level on the exports trade of Pakistan. All the sectors involved in the export trade…
Abstract
Purpose
The purpose of this paper is to explore the impact of exchange rate volatility at sectoral level on the exports trade of Pakistan. All the sectors involved in the export trade (proposed by the State Bank of Pakistan, by commodity), were used to study this relationship at a more minute level.
Design/methodology/approach
Quarterly data regarding research were collected over the period 2003 to 2010 from databases of State Bank of Pakistan and International Monetary Fund financial statistics. The bound testing approach proposed by Pesaran et al., was used to study the relationship between sectoral export and exchange rate volatility, while augmented Dickey Fuller (ADF) and Phillips Perron tests were used to test the unit root of series and GARCH,proposed by Bollerslev, was used to study exchange rate volatility.
Findings
The results show that exports are negatively influenced by exchange rate volatility and relative prices while positively affected by foreign income. This relationship holds for all sectors where bound testing revealed the existence of long‐ run relationship, although some equations results were not statistically significant.
Practical implications
The paper's findings can be used to form such policies which result in a stabilized and competitive exchange rate, so that Pakistan's exports can be increased.
Originality/value
Previous studies have been conducted on aggregated data set for exports in the Pakistani context, which hinders pertinent information; however this information is possible by studying disaggregated data. The paper fills a research gap by taking sectoral level data, to divulge the behavior of individual sectors against exchange rate volatility.
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Athanasios Koulakiotis, Katerina Lyroudi, Nikos Thomaidis and Nicholas Papasyriopoulos
The purpose of this paper is to examine volatility transmissions between portfolios of cross‐listed equities and exchange rate differences and also the volatility persistence for…
Abstract
Purpose
The purpose of this paper is to examine volatility transmissions between portfolios of cross‐listed equities and exchange rate differences and also the volatility persistence for home, foreign equities, and exchange rate differences in the UK and German markets.
Design/methodology/approach
A primary focus of this paper is to see if there is an impact first on the volatility persistence for foreign equities that are listed in the UK and German markets, second on the respective home portfolios of cross‐listed equities, and third on the exchange rate differences. In addition, whether there are any bilateral spillovers between the following equity portfolios: foreign cross‐listed equities, home cross‐listed equities, and also local or global exchange rate differences are investigated.
Findings
The paper finds that the volatility persistence is more prominent than error persistence from cross‐listed equities, foreign or home, and the exchange rate differences. Furthermore, the transmission mechanism indicates a bilateral integration process in some of the cases that were examined. Based on these results, it is concluded that in the UK market the foreign cross‐listings affect less the domestic equities compared to the German market.
Originality/value
This paper examines the interdependence of portfolios of home and foreign equities for cross‐listings that belong to the same stock exchange with two exchange rates, a local and a global one in order to provide more evidence in this area of literature.
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This study aims to examine the relationship between exchange rate risk and export at commodity level for the Indian case.
Abstract
Purpose
This study aims to examine the relationship between exchange rate risk and export at commodity level for the Indian case.
Design/methodology/approach
The monthly panel data used for analysis are at a disaggregated level, which cover around 100 products, encompassing all merchandize sectors for the period spanning from 2012:12 to 2017:11. To measure the exchange rate volatility, the authors use real as well as nominal exchange rate concepts and predict the volatility of exchange rate using the autoregressive conditional heteroscedastic-based model. They use pooled mean group, mean group and common correlated effects mean group estimator that is suitable for the objectives and data frequency.
Findings
The empirical analysis indicates both short- and long-term negative effects of exchange rate variations on exporting. Specifically, in the long run, real exchange rate as well as nominal exchange rate volatility has significant effects on export performance, yet, the effects of uncertainty of nominal exchange rate is much severe and intense. In the short run, it is the nominal exchange rate uncertainty that hurts exports from India. Nevertheless, the short-run effect is much lesser than the long-run, supporting the argument that the short-term exchange rate risk can be hedged, at least partially, through financial instruments; however, uncertainty of the long-term horizon cannot be hedged easily and cost-effectively.
Practical implications
Reducing uncertainty and attaining stability in exchange rate and price level should be an important policy objective in developing countries such as India to achieve higher export growth, both in the short and long run.
Originality/value
Unlike previous studies, this paper tests the relationship using micro-level data and uses advanced econometric techniques that are likely to provide more precise information regarding the association between exchange rate volatility and trade flows.
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The purpose of this study is to examine the effect of asymmetric structure inherent in exchange rate volatility on trade in sub-Saharan African countries from 2005 to 2017.
Abstract
Purpose
The purpose of this study is to examine the effect of asymmetric structure inherent in exchange rate volatility on trade in sub-Saharan African countries from 2005 to 2017.
Design/methodology/approach
17 countries in sub-Saharan African Countries are used for the study. Exchange rate volatility is generated using generalised autoregressive conditional heteroscedacity (1,1), while the asymmetric components of exchange rate volatility are generated using a refined approach of cumulative partial sum developed by Granger and Yoon (2002). Two-step generalised method of moments is used as the estimation technique in order to address the problem of endogeneity, commonly found in panel data.
Findings
The result from the study shows the evidence of exchange rate volatility clustering which is strictly persistent in sub-Saharan African countries. The asymmetric components (positive and negative shocks) of exchange rate volatility have negative and significant effect on trade in the region. Meanwhile, the effect of negative exchange rate volatility is higher on trade when compared with the positive exchange rate volatility. Furthermore, real exchange rate has negative and significant effect on trade in sub-Saharan African countries.
Research limitations/implications
The outcomes of this study are important for participants in foreign exchange market. As investors in foreign exchange market react more to the negative news than positive news, investors need to diversify their risk. Also, regulators in the market need to formulate appropriate macroeconomic policies that will stabilize exchange rate in the region.
Originality/value
This study deviates from extant studies in the literature by incorporating asymmetric structure into the exchange rate trade nexus using a refined approach.
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