Linkages Between the Foreign Exchange Markets of BRIC Countries—Brazil, Russia, India and China—and the USA

2018 ◽  
Vol 17 (3) ◽  
pp. 333-353 ◽  
Author(s):  
Ramya Rajajagadeesan Aroul ◽  
Peggy E. Swanson
Keyword(s):  
Foreign Exchange ◽  
Jel Classification ◽  
Foreign Exchange Markets ◽  
Bric Countries ◽  
Long Run ◽  
The Usa ◽  
Short Run ◽  
Exchange Markets ◽  
Equilibrium Relationships ◽  
India And China

The past decade has witnessed increasing trade and capital flow movements between BRIC countries (Brazil, Russia, India and China) and the USA indicating a need for a better understanding of currency linkages between these countries. This article examines long-run and short-run relationships between foreign exchange markets of BRIC countries and the USA. Long-run results indicate that, over a period beginning January 2000 and ending November 2013, the currency markets of China, India and the USA are tied together, implying that from the perspective of the US investor, the markets of Brazil and Russia provide the greater diversification benefits. Further, the USA is found to be the source of the common trend (CT), suggesting that it leads the three (cointegrated) markets towards the long-run equilibrium relationships. Brazil and India share no short-run lead-lag relationship with the USA. JEL Classification: F31, G15

scholarly journals Good coups, bad coups: evidence from Thailand’s financial markets

2018 ◽  
Vol 15 (2) ◽  
pp. 68-86
Author(s):  
Sutsarun Lumjiak ◽  
Nguyen Thi Thieu Quang ◽  
Christopher Gan ◽  
Sirimon Treepongkaruna
Keyword(s):  
Financial Markets ◽  
Foreign Exchange ◽  
Foreign Exchange Markets ◽  
Negative Consequences ◽  
Minimal Impact ◽  
Good Investment ◽  
Long Run ◽  
Daily Data ◽  
Short Run ◽  
Exchange Markets

This study investigates the short-run and long-run impact of coups on Thailand’s financial markets. Using daily data from the stock and foreign exchange markets during the period 2005–2017, the study shows (1) both coups in 2006 and in 2014 exert short-run impact on Thailand’s stock and foreign exchange markets; (2) however, the direction and magnitude of impact are different and opposite in the two coups; and (3) in the long run, the coups exhibit minimal impact on the currency market, but induce better market performance (positive return and decrease in the return volatility) despite an increase in liquidity risk of the stock market. Against common beliefs about negative consequences of the coup d’états, this study suggests that the uncertainty surrounding coups can bring good investment opportunities for investors to earn abnormal profits. Moreover, in the long term, the coup can drive the country to better stability and development.

The long-run effects of geopolitical risk on foreign exchange markets: evidence from some ASEAN countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hon Chung Hui
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Risk Index ◽  
Foreign Exchange Markets ◽  
Content Type ◽  
Long Run ◽  
Exchange Markets ◽  
Exchange Rate Models ◽  
Asean Countries

PurposeThe purpose of this paper is to analyse the long-run relationship between geopolitical risk and exchange rates in four ASEAN countries.Design/methodology/approachWe augment theoretical nominal exchange rate models available in the literature with the geopolitical risk index developed by Caldara and Iacoviello (2019), and then estimate these models using the ARDL approach to Cointegration.FindingsOur analysis uncovers evidence of Cointegration in the exchange rate models when the MYR-USD, IDR-USD, THB-USD and PHP-USD exchange rates are used as dependent variable. Next, geopolitical risk is a significant long-run driver for these exchange rates. Third, in all countries higher geopolitical risk leads to a depreciation of domestic currency.Research limitations/implicationsThere are implications for entrepreneurs, central banks, portfolio managers and arbitrageurs who actively trade in financial markets. Financial market players can benefit from a better understanding of how geopolitical events affect the portfolio of financial assets across various countries, while entrepreneurs can work out hedging strategies.Originality/valueThis is a contribution to the study of interlinkages between political risk and foreign exchange markets. It is the first study to adopt the geopolitical risk index of Caldara and Iacoviello (2019) to the study the foreign exchange markets of ASEAN countries.

scholarly journals Time-Varying Comovement of Foreign Exchange Markets: A GLS-Based Time-Varying Model Approach

Mathematics ◽  
2021 ◽  
Vol 9 (8) ◽  
pp. 849
Author(s):  
Mikio Ito ◽  
Akihiko Noda ◽  
Tatsuma Wada
Keyword(s):  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Exchange Markets ◽  
Time Varying ◽  
Quarter Century ◽  
Vec Model ◽  
Long Run ◽  
Loading Matrix ◽  
Exchange Markets ◽  
Over Time

How strongly are foreign exchange markets linked in terms of their similarities in long-run fluctuations? Are they cointegrating? To analyze such “comovements,” we present a time-varying cointegration model for the foreign exchange rates of the currencies of Canada, Japan, and the UK vis-à-vis the U.S. dollar from May 1990 through July 2015. Unlike previous studies, we allow the loading matrix in the vector error-correction (VEC) model to be varying over time. Because the loading matrix in the VEC model is associated with the speed at which deviations from the long-run relationship disappear, we propose a new degree of market comovement based on the time-varying loading matrix to measure the strength or robustness of the long-run relationship over time. Since exchange rates are determined by macrovariables, cointegration among exchange rates implies these variables share common stochastic trends. Therefore, the proposed degree measures the degree of market comovement. Our main finding is that the market comovement has become stronger over the past quarter-century, but at a decreasing rate with two major turning points: one in 1995 and the other one in 2008.

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