scholarly journals Volatility Spillover effects from Changes of Exchange Rate to Stock Returns Based on Firm Size

2013 ◽  
Vol 9 (7) ◽  
pp. 283-301
Author(s):  
Sayoung Lee
Keyword(s):  
Exchange Rate ◽  
Stock Returns ◽  
Firm Size ◽  
Spillover Effects ◽  
Volatility Spillover

Asymmetric impact of exchange rate changes on stock returns: evidence of two de facto regimes

2019 ◽  
Vol 19 (2) ◽  
pp. 147-173
Author(s):  
Walid M.A. Ahmed
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Stock Market ◽  
Stock Returns ◽  
Stock Prices ◽  
Spillover Effects ◽  
Content Type ◽  
Currency Depreciation ◽  
Long Run ◽  
Exchange Rate Changes

Purpose This study focuses on Egypt’s recent experience with exchange rate policies, examining the existence of spillover effects of exchange rate variations on stock prices across two different de facto regimes and whether these effects, if any, are asymmetric. Design/methodology/approach The empirical analysis is carried out using a nonlinear autoregressive distributed lag modeling framework, which permits testing for the presence of short- and long-run asymmetries. Relevant local and global factors are also included in the analysis as control variables. The authors divide the entire sample into a soft peg period and a free float one. Findings Over the soft peg regime period, both positive and negative changes in EGP/USD exchange rates seem to have a significant impact on stock returns, whether in the short or long run. Short-term asymmetric effects vanish in the free float period, while long-term asymmetries continue to exist. By and large, the authors find that currency depreciation tends to exercise a stronger influence on stock returns than does currency appreciation. Practical implications The results offer important insights for investors, regulators and policymakers. With the domestic currency depreciation having a negative impact on stock prices, investors should contemplate implementing appropriate currency hedging strategies to abate depreciation risks and, hence, preserve their expected rate of return on the Egyptian pound-denominated investments. In the current post-flotation era, the government could pursue a flexible inflation targeting monetary policy framework, with a view to both lowering the soaring inflation toward an announced target rate and stabilizing economic growth. The Central Bank of Egypt (CBE) could adopt indirect monetary policy instruments to secure tightened liquidity conditions. Besides, the CBE could raise policy rates to incentivize people to keep their money in local currency-denominated instruments, instead of dollarizing their savings, thereby relieving banks of foreign currency demand pressures. Nevertheless, while being beneficial to the country’s real economy on several aspects, such contractionary monetary measures may temporarily impinge on stock market performance. Accordingly, policymakers should consider precautionary measures that reduce the potential for price distortions and unnecessary volatility in the stock market. Originality/value To the best of the authors’ knowledge, the current study represents the first attempt to explore the potential impact of exchange rate changes under different regimes on Egypt’s stock market, thus contributing to the relevant research in this area.

How Does COVID-19 Affect the Volatility Spillover Between the Exchange Rate and the Export-oriented Businesses in Iran?

2022 ◽  
pp. 097215092110606
Author(s):  
Zahra Honarmandi ◽  
Samira Zarei
Keyword(s):  
Exchange Rate ◽  
Stock Exchange ◽  
Spillover Effects ◽  
Garch Models ◽  
Volatility Spillover ◽  
Exogenous Shocks ◽  
Risk Period ◽  
Before And After ◽  
The Exchange Rate ◽  
Fractal Market Hypothesis

This study concentrates on examining the volatility spillover effects between the exchange rate (IRR to USD) and the leading export-oriented industries (i.e., petrochemical, basic metals and minerals) in Tehran Stock Exchange before and after the COVID-19 pandemic. Using DCC- and asymmetric DCC-GARCH approaches, the data sample (from 15 December 2018 to 24 April 2021) has been partitioned into two sub-samples: before and after the official announcement of COVID-19 outbreak. The results demonstrate that from the pre- to post-COVID-19 periods, first, the average returns of all industries have sharply fallen; second, the volatility of all variables has been significantly augmented in different horizons; third, for all industries, not only has the fractal market hypothesis approved in both separated periods, but also analysing the values of the fractional difference parameter, together with the outcomes of GARCH models, supports in the higher-risk post-COVID-19 period, wherein the effects of exogenous shocks last longer than their impacts in the alternative lower-risk period. Furthermore, our investigations demonstrate that the asymmetric spillover (based on the ADCC-GARCH models) in both pre- and post-COVID-19 periods are confirmed in all three industries, except for minerals after the novel coronavirus.Ultimately, the results not only corroborate the increase in the volatility spillover effects right after the COVID-19 but also substantiate that the exchange rate contributes most of the spillover effects into the petrochemical and minerals industries, which have been almost twice as much as those of the basic metals.

Asymmetric impact of shocks on Islamic stock indices: a cross country analysis

2019 ◽  
Vol 10 (1) ◽  
pp. 2-86 ◽  
Author(s):  
Anum Fatima ◽  
Abdul Rashid ◽  
Atiq-uz-Zafar Khan
Keyword(s):  
Stock Returns ◽  
Empirical Analysis ◽  
Spillover Effects ◽  
Policy Implications ◽  
Bad News ◽  
Volatility Spillover ◽  
Content Type ◽  
Asymmetric Effects ◽  
Stock Indices ◽  
Asymmetric Impact

PurposeSeveral studies focus on asymmetric impact of shocks on conventional stocks. However, only few studies explore Islamic stocks, but none has examined the asymmetric impact of shocks on Islamic stocks. This study aims to fill the gap by investigating the asymmetric impact of shocks on Islamic stocks. Specifically, it identifies the effect of good and bad news on Islamic stock market. The study also aims to examine the returns and volatility spillover effects across different Islamic markets.Design/methodology/approachTo carry out the empirical analysis, the authors have applied the exponential generalized autoregressive conditional heteroscedasticity (ARCH) model on daily Islamic stock indices of 18 countries. The study covers the period from July 2009 to July 2016. The authors have started their empirical analysis by examining the time series properties and testing the presence of ARCH effects. Further, the authors have applied several post-estimation tests to ensure the robustness of the results.FindingsThe results indicate that there is significant leverage effect in Islamic stocks traded in the sampled countries. That is, negative shocks or bad news have stronger effects on Islamic stock returns’ volatility as compared to positive shocks or good news. The authors also found that there are significant mean spillover effects for the examined countries. This finding implies that increased Islamic stock returns in country have significant and positive effects in Islamic stocks’ returns in another other. Similarly, the results regarding the volatility spillover effects suggest that there are significant volatility spillover effects across all examined countries. However, the authors found both positive and negative volatility spillover effects. It should also be noted that in some cases, the authors did not find any significant volatility spillover effect.Practical implicationsThe findings of this study have several important policy implications for both investors and policymakers. As the findings suggest that Islamic stock indices are integrated across countries both in terms of returns (mean) and risk (volatility), they are useful for investors to design well-diversified portfolios. The significant volatility spillovers suggest policymakers to design such policy that may help in reducing the adverse effects of increased volatility of Islamic stock of other/foreign countries on the Islamic stocks of the home countries. The significant evidence of the presence of leverage (asymmetric) effects suggest investors to use effective and active hedging instruments to hedge risk, particularly, in bad times.Originality/valueUnlike other studies on Islamic stocks, this study takes into account the asymmetric effects of positive and negative shocks. Further, the study examines the mean and variance spillover effects for a large panel of countries having Islamic stocks. Finally, several pre- and post-estimation tests are applied to ensure the robustness of the results.

scholarly journals The Effect of Company Size, Exchange Rate and Earnings Per Share on Stock Returns

2022 ◽  
Vol 7 (1) ◽  
pp. 1-8
Author(s):  
Elfiswandi Elfiswandi ◽  
Cindy Angela ◽  
Muhammad Fikri Ramadhan
Keyword(s):  
Exchange Rate ◽  
Capital Structure ◽  
Stock Returns ◽  
Firm Size ◽  
Stock Exchange ◽  
Control Variable ◽  
Secondary Data ◽  
Manufacturing Companies ◽  
Earnings Per Share ◽  
Library Research

This study aims to examine and analyze the effect of firm size, exchange rate, earnings per share and capital structure as control variables on stock returns. All manufacturing companies listed on the Indonesia Stock Exchange for the period 2013 – 2017 are the population in this study. By using purposive sampling method, 100 companies were selected as samples in the study. The method of collecting data is library research and secondary data from the official publications of the Indonesia Stock Exchange and the official website of Bank Indonesia. Panel and regression methods are used as an analytical tool in this study. The results obtained in the study are, stock returns are significantly affected by firm size, exchange rates and earnings per share either partially or simultaneously. Meanwhile, when using capital structure as a control variable on stock returns, the results show that the variables of firm size, exchange rate and earnings per share are partially stated to have no significant effect.

Volatility Spillover Structure of Stock and Foreign Exchange Market between Korea, Japan, and Hong Kong

2006 ◽  
pp. 162-182
Author(s):  
Masayuki Susai
Keyword(s):  
Exchange Rate ◽  
Stock Returns ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Rate Volatility ◽  
Foreign Exchange Rate ◽  
Volatility Spillover ◽  
Exchange Market ◽  
Portfolio Risk ◽  
International Portfolio

Highly developed IT technology can be the source of volatility spillover between markets located in other countries. In this chapter, we investigate the interrelationship between stock returns in North East Asian countries and the effect of foreign exchange rate volatility on the interrelationship between stock returns. We bring out clear simultaneous interrelationship between stock return and foreign exchange volatility. Focusing on covariance of each asset returns, if we do not take foreign exchange rate volatility into account when we evaluate our international portfolio, the portfolio risk might be underevaluated. The analysis shows that foreign exchange market turbulence might be accompanied by increase in covariance between stock returns. Just after the Asian currency crisis, the relationship between stock returns and foreign exchange turbulence might have changed. For managing international portfolio risk, we should be aware of foreign exchange risk and structural change in covariance between stock returns.

scholarly journals Return and Volatility Spillover among Commodity Futures, Stock Market and Exchange Rate: Evidence from India

2018 ◽  
Vol 20 (1) ◽  
pp. 214-237 ◽  
Author(s):  
Debasish Maitra ◽  
Varun Dawar
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Spillover Effects ◽  
Asset Market ◽  
Volatility Spillover ◽  
Stock Indices ◽  
Volatility Model ◽  
Exchange Rate Markets ◽  
Multivariate Volatility ◽  
Auto Regression

This article aims to investigate return and volatility spillover among commodity, stock and exchange rate markets. The article further looks into whether there is any change in return and volatility spillover during the crisis and post-crisis periods and whether there is any in the behaviour of spillover changes between agro and non-agro based commodities. The study uses Vector Auto Regression followed along with by Granger causality are to understand the causality of returns. We have performed multivariate volatility model to study the volatility co-movement of different assets. Unidirectional return spillover from the Multi Commodity Exchange (non-agro commodity) to stock indices and exchange rates is found. Stock indices are found to influence exchange rates to return; whereas the only dollar explains the return in stock indices. Equity markets have been found to have a return spillover on NCDEX (agro commodity) during the post-crisis period. However, each asset market is found to have volatility spillover effects on the other asset market. Commodity indices have more spillover effects on stocks.

scholarly journals The Risk of Foreign Exchange Exposure of Stock Returns Concerning Non-Financial Listed Firms

2021 ◽  
Vol VI (I) ◽  
pp. 105-125
Author(s):  
Syed Muhammad Ali Tirmizi ◽  
Muhammad Jawad Haider ◽  
Shahab Ud Din
Keyword(s):  
Exchange Rate ◽  
Stock Returns ◽  
Money Supply ◽  
Foreign Exchange ◽  
Firm Size ◽  
Financial Data ◽  
Real Effective Exchange Rate ◽  
Listed Firms ◽  
Size Firm ◽  
Foreign Exchange Exposure

The foreign exchange rate fluctuations do create an impact on stock returns, which has been investigated for non-financial listed Pakistani firms. The real effective exchange rate has been used as the true measure of foreign exchange exposure. The modelled econometric equation includes; firm size, firm liquidity, money supply and inflation as predictors of stock returns. Twenty-five non-financial listed firms have been evaluated for the study period 2004 to 2013, which signifies the military regime era proceeded by peoples party rule in Pakistan. Financial data analysis, including; ADF unit root and Johansen Co-integration tests, have been applied to evaluate financial data, which further led to correlation, descriptive stats and panel data regression analysis. The results have suggested a very weak relationship between stock returns and foreign exchange exposure. Therefore, sample non-financial listed firms have not been foreign exchange exposed; however, firm size, liquidity, money supply and inflation rates have definitely created an impact on stock returns.

scholarly journals To What Extent are Stock Returns Driven by Mean and Volatility Spillover Effects? – Evidence from Eight European Stock Markets

2013 ◽  
Vol 13 (1) ◽  
pp. 3-29 ◽  
Author(s):  
Abdulla Alikhanov
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Spillover Effects ◽  
Volatility Spillover ◽  
Volatility Spillovers ◽  
The Us ◽  
Variance Ratios ◽  
Market Shocks ◽  
European Stock Markets ◽  
The U.S

Abstract The paper investigates mean and volatility spillover effects from the U.S and EU stock markets as well as oil price market into national stock markets of eight European countries. The study finds strong indication of volatility spillover effects from the US-global, EU-regional, and the world factor oil towards individual stock markets. While both mean and volatility spillover transmissions from the US are found to be significant, EU mean spillover effects are negligible. To evaluate the magnitude of volatility spillovers, the variance ratios are also computed and the results draw to attention that the individual emerging countries’ stock returns are mostly influenced by the U.S volatility spillovers rather than EU or oil markets. Additionally, examination of only global and regional stock markets spillover transmissions into European stock markets also confirms the dominating presence of the U.S spillover transmissions. Furthermore, I also implement asymmetric tests on stock returns of eight markets. The stock market returns of Hungary, Poland, Russia and the Ukraine are found to respond asymmetrically to negative and positive shocks in the US stock returns. The weak evidence of asymmetric effects with respect to oil market shocks is found only in the case of Russia and the quantified variance ratios indicate that presence of oil market shocks are relatively higher for Russia. Moreover, a model with dummy variable confirms the effect of European Union enlargement on stock returns only for Romania. Finally, a conditional model suggests that the spillover effects are partially explained by instrumental macroeconomic variables, out of which exchange rate fluctuations play the key role in explaining the spillover parameters rather than total trade to GDP ratios in most investigated countries.

scholarly journals A Markov switching SVAR analysis on the relationship between exchange rate changes and stock returns in China

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Juan Carlos Cuestas ◽  
Bo Tang
Keyword(s):  
Exchange Rate ◽  
Stock Returns ◽  
Regime Switching ◽  
Global Economy ◽  
Markov Switching ◽  
Spillover Effects ◽  
Structural Var ◽  
Content Type ◽  
Long Run ◽  
Exchange Rate Changes

PurposeThis study investigates the spillover effects between exchange rate changes and stock returns in China. The authors find that no significant interconnections exist between stock returns and exchange rates changes.Design/methodology/approachAlthough the conventional structural VAR (SVAR) approach fails to examine the contemporaneous effects, the Markov switching SVAR model captures the volatile structure of the Chinese financial market. The regime-switching estimates indicate that volatile structure tends to be significant during two financial crisis periods.FindingsNotwithstanding the fact that exchange rate changes cannot Granger-cause stock returns in the long run, its contemporaneous spillover effects on stock returns are found to be statistically significant.Originality/valueThis study aims to shed light on the spillover effects between exchange rate changes and stock returns in China, as the Chinese currency is becoming flexible and China’s stock market has undertaken important reforms. The spillovers between the two markets are of topical importance due to the increasing connections between China and the global economy.

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