Exchange rate volatility and its effect on stock market volatility

International Journal of Human Capital in Urban Management

F. Nourzad¹  K. Kennedy² 

[1] Economics Department, Marquette University Milwaukee, WI53201-1881, USA;Federal Housing Finance Agency, Washington, DC 20006, USA;

关键词: Exchange rates;    GARCH;    stock market;    volatility;   

DOI  :  10.7508/ijhcum.2016.01.005

来源: DOAJ

【 摘 要 】

This paper investigates empirically the effect of volatility of the exchange rate of the U.S. dollar vis-à-vis the euro on U.S. stock market volatility while controlling for a number of drivers of stock return volatility. Using a GARCH(1, 1) model and using weekly data covering the period from the week of January 1, 1999 through the week of January 25, 2010, it is found that the 9/11 terrorist attack, bear markets, fluctuations in jobless claims, and negative equity market returns increase financial volatility. On the other hand, no conclusive results are found regarding the effect of fluctuations in M2, or incorrect expectations of changes in the federal funds target rate. Finally, it is found that when major drivers of financial volatility are controlled for, increased exchange rate volatility exerts a positive and statistically significant effect on the volatility of stock returns. Monetary policymakers need to take this effect into account when formulating exchange rate actions within the prevailing managed float.

【 授权许可】

Unknown