Are There Asymmetries in the Relationship Between Exchange Rate Fluctuations and Stock Market Volatility in Pacific Basin Countries?

2006 ◽  
Vol 09 (02) ◽  
pp. 229-256 ◽  
Author(s):  
Nabil Maghrebi ◽  
Mark J. Holmes ◽  
Eric J. Pentecost
Keyword(s):  
Stock Market ◽  
Market Volatility ◽  
Bad News ◽  
Good News ◽  
Pacific Basin ◽  
Stock Market Volatility ◽  
Currency Markets ◽  
Dynamic Relationship ◽  
Exchange Rate Fluctuations ◽  
Asymmetric Impact

This paper examines asymmetries in the dynamic relationship between foreign exchange fluctuations and stock market volatility in Pacific basin countries. The methodology is based on a dynamic covariance modelling that accounts for leverage effects and the asymmetric impact of currency fluctuations. There is evidence that appreciations are more conducive to lower volatility in currency markets than depreciations of equal magnitude. Market volatility tends to be ceteris paribus, more sensitive to bad news about equity than good news and more responsive to currency depreciations than appreciations. The results also suggest that bad news about equity accompanied with currency depreciations are likely to generate higher volatility in currency markets and have the potential of affecting the significance of leverage effects in stock markets.

scholarly journals ASYMMETRIC IMPACT OF INVESTOR SENTIMENT ON BRAZILIAN STOCK MARKET VOLATILITY

2021 ◽  
Vol 22 (4) ◽  
Author(s):  
TALIEH S. V. FERREIRA ◽  
MÁRCIO A. V. MACHADO ◽  
POLYANDRA Z. P. SILVA
Keyword(s):  
Stock Market ◽  
Emerging Markets ◽  
Design Methodology ◽  
Investor Sentiment ◽  
Market Volatility ◽  
Stock Market Volatility ◽  
Developed Markets ◽  
Asymmetric Behavior ◽  
Asymmetric Impact ◽  
Book To Market Ratio

ABSTRACT Purpose: The purpose of this study was to analyze the effect of investor sentiment on the volatility of the Brazilian stock market. Specifically, it aimed to identify if the asymmetric behavior of sentiment could be observed in emerging markets, considering companies that have characteristics that are difficult to price. Originality/value: Unlike most studies on investor sentiment, this study focuses on its impact on the stock market volatility, as well as on the characteristics of companies associated with difficult pricing. Design/methodology/approach: The volatility of the IBRX100 index was used to represent the Brazilian stock market, and as a proxy for investor sentiment it was selected Miranda's index (2018), based on market data. Data were estimated using the two-stage least squares (MQ2E) technique to address endogeneity problems. Finally, the volatility of companies with difficult-to-price characteristics was segregated to analyze their sensitivity to sentiment. Findings: The results indicate that sentiment has a negative and sig nificant relationship with the volatility of the Brazilian market, as well as evidences an asymmetrical behavior, being statistically stronger in pessimistic periods. Additional analyzes evidence that the explanatory sentiment capacity is sensitive to companies' characteristics, but only companies with a high book-to-market ratio showed asymmetric behavior, as expected by the literature. The portfolios segmented by size and illiquidity maintained an asymmetric behavior, but it was the volatility of the large companies and the less illiquid ones that were best explained by sentiment, indicating that the Brazilian market has distinctive characteristics in relation to developed markets.

scholarly journals IMPACT OF POLITICAL INSTABILITY AND TERRORISM ON STOCK RETURNS: EVIDENCE FROM PAKISTAN

2013 ◽  
Vol 01 (02) ◽  
pp. 47-54
Author(s):  
Hasan Raza ◽  
Shafaq Malik
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Stock Returns ◽  
Political Instability ◽  
Bad News ◽  
Good News ◽  
Stock Market Volatility ◽  
Egarch Model ◽  
Year 2000 ◽  
The Impact

This study examines the impact of terrorist activities and regime in Pakistan on the return and volatility dynamics of the financial markets in Pakistan between year 2000 and 2010. The study constructs two dummy variables that quantify political instability and terror and examine the effect on stock market volatility. An ARCH and GARCH model to discover evidence that terrorism and regime has a significant impact on both the return and volatility dynamics of stock markets. To capture the asymmetries in terms of negative and positive shocks, this study also uses threshold GARCH (TGARCH) and an exponential GARCH (EGARCH) model. From both of the TGARCH and EGARCH results, it can be reveal that for the return of KSE-100, there are asymmetries in the news that shows bad news has a larger effect on the volatility of return than good news. Finally study of the reaction of the stock market to terrorist events may also provide indication to investors and speculators to adjust their positions when such events transpire.

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