Do Monetary Policy Announcements Affect Exchange Rate Returns and Volatility of Returns? Some Evidence from High‐Frequency Intra‐Day South African Data

This paper examines the temporal effect of domestic monetary policy surprises on both returns and volatility of returns of the South African rand/U.S. dollar exchange rate. The analysis in this “event study” proceeds using intra‐day minute‐by‐minute exchange rate data, repo rate data from the South African Reserve Bank's scheduled monetary policy announcements, and market consensus repo rate forecasts. A carefully selected sample over the period August 2003 to November 2017 ensures that the change in monetary policy is exogenous to the exchange rate. We find statistically and economically significant responses in intra‐day high‐frequency South African rand/U.S. dollar exchange rate returns and volatility of exchange rate returns to domestic interest rate surprises, but anticipated changes have no bearing on exchange rate returns and their volatility. The empirical results also indicate that there is an instantaneous response of the rand/dollar exchange rate to monetary policy surprises and that monetary policy news is an important determinant of the exchange rate until at least 42 minutes after the pronouncement – suggesting a high degree of market “efficiency” in its mechanical sense (although not necessarily in the deeper economic‐informational sense) in processing this information. Essentially, the asymmetric GARCH results exhibit no leverage effects – positive and negative information shocks have symmetric effects on conditional variance.     

Exchange rate exposure of sectoral returns and volatilities: Evidence from Japanese industrial sectors

Most studies of exchange rate exposure of stock returns do not address three relevant aspects simultaneously. They are, namely: sensitivity of stock returns to exchange rate changes; sensitivity of volatility of stock returns to volatility of changes in foreign exchange market; and the correlation between volatilities of stock returns and exchange rate changes. In this paper, we employ a bivariate GJR-GARCH model to examine all such aspects of exchange rate exposure of sectoral indexes in Japanese industries. Based on a sample data of fourteen sectors, we find significant evidence of exposed returns and its asymmetric conditional volatility of exchange rate exposure. In addition, returns in many sectors are correlated with those of exchange rate changes. We also find support for the “averaged-out exposure and asymmetries” argument. Our findings have direct implications for practitioners in formulating investment decisions and currency hedging strategies.     

Estimating time-varying currency betas with contagion: New evidence from developed and emerging financial markets

This paper examines the conditional time-varying currency betas from five developed and six emerging financial markets with contagion and spillover effects. We employ a trivariate asymmetric BEKK-type GARCH-in-Mean (MGARCH-M) approach to estimate the time-varying conditional variance and covariance of returns of stock market index, the world market portfolio and bilateral exchange rate between the US dollar and the local currency. The results show that the world market and currency risks are not only priced in the stock markets, but also time-varying. It is found that currency betas are much more volatile than the world market betas, and currency betas in the emerging markets are more volatile than those in the developed markets. We find empirical evidence of contagion effect and spillovers between stock market and foreign exchange market during the recent global financial crisis, and the effect is stronger in the emerging markets than that in the developed markets. Two applications are provided to illustrate the usefulness of time-varying currency betas.     

Equity Risk Premium Puzzle: Evidence from Indonesia and Sri Lanka

This paper investigates the equity risk premium puzzle in the Indonesian and Sri Lankan stock markets in order to identify the relationship between the volatility of excess returns and the equity risk premium. The asymmetric impact of negative shocks on the equity risk premium is also examined using threshold and exponential GARCH-M models. We analyse data on the excess returns of the Indonesian and Sri Lankan stock markets from 2004 to 2013, and we find that the impact of the conditional volatility of excess returns on the equity risk premium is not significant in either country. Instead, we find an impact from negative return shocks on the equity risk premium only in Sri Lanka. Therefore, we conclude that investors are not compensated for the conditional volatility of the excess returns in these two markets, while Sri Lankan investors are compensated for the risk of negative shocks.     

信息、政策冲击和中国股票、债券及外汇市场一体化——基于AG-DCC模型的金融市场动态相关性分析

本文运用Cappiello et al．（2006）提出的AG—DCC模型对中国金融市场的研究发现,中国股票、债券和外汇市场间存在明显的动态相关性 ,虽然“正向冲击”和“负向冲击”对金融市场波动并不产生明显的非对称效应,但对市场间动态相关性有着显著的影响,而且信息和政策冲击反映在动态相关性的结构变化上。最后,用平均动态相关性作为一体化指标对中国金融市场的考察发现,相对于欧盟市场间,中国股票市场一体化程度相当高,但股票和债券、股票和外汇以及债券和外汇市场间的一体化程度有待提高。     

Interaction between Foreign and Domestic Investors in the Korean Stock and Futures Markets*

The present paper analyzes the behavioral relations of major investor groups in the stabilized Korean stock and futures markets after the 1997 Asian financial crisis. Investor groups cannot be classified as positive or negative feedback traders on market returns when both stock and futures markets are considered, which is inconsistent with the results in Ghysels and Seon (2005). Foreign investors and domestic institutions tend to take opposite positions in both markets. The impact of foreign investors on the basis change is significantly negative in the futures market, whereas domestic institutions have a negative relation in the stock market. This supports the view that selling activity of foreign investors in the futures market pulls the futures price down compared with the index value and, consequently, induces the reverse cash‐and‐carry trade of domestic institutions. This relationship, which negatively influenced the Korean economy during the crisis, as shown in Ghysels and Seon (2005), still exists in the Korean financial markets.     

Volatility and Volume in Chinese Stock Markets

The fact that stock market returns in Europe and the USA are characterised by conditional heteroscedasticity is by now well documented in a large literature. We address the question of whether the same is true of the four Chinese stock markets (Shanghai and Shenzhen A and B) over the period from 25 November 1994 to 27 April 2001. Using daily index data, we make two departures from the standard GARCH(1,1) model. First, we use exponential GARCH (EGARCH) to allow for asymmetry in the volatility, which may be present as a result of leverage effects. Second, we respond to evidence of two-way causality between volume and return (and return volatility) by introducing a simultaneous equation model of the relationship. The results of estimating the model indicate that asymmetry does not seem to be present to a significant degree, possibly as a result of lack of information or concern among Chinese investors. We find that volume appears to play a significant part in determining index volatility, which may reflect information arrival effects or may alternatively result from the direct impact of trading on volatility. At the same time, we also find that both the level of returns and their conditional variance have an impact on trade volume, probably because positive (negative) returns tend to attract (deter) investors into the markets.     

收益波动与随机冲击的非对称性影响：中国与美国股票市场的对比

通过讨论股票收益与随机;中击之间的关系,对中国股票市场和美国股票市场进行了对比研究。研究中使用了中国上海和深圳股票市场1990年12月31日至2005年12月30日的两市A股算术平均周指,以及美国股票市场1973年1月2日至2004年月12月30日的标准普尔500周指。在进行经验研究的过程中,分别使用了线性GARCH模型和GJR—GARCH模型计量股票收益的条件波动——即模型中的条件方差。研究发现,中国股票市场自1990年——1995年波动剧烈,之后波动趋于平缓,而美国股票市场在研究期间内收益波动一直处于一定范围内。同时还发现,美国股票市场的随机冲击对股票收益产生非对称性影响,即负冲击使股票收益产生的波动大于正冲击。而在中国股票市场却找不到相似的证据。鉴于对中国股票市场收益波动的研究结果,在剔除1996年以前的数据之后又进行了扩展研究,但是似然比率检验结果表明,正冲击对股票收益的影响还要略强于负冲击。     

人民币汇率波动对股票价格报酬影响的实证研究

文章基于我国2005年7月-2010年2月的时间序列数据,采用单位根检验、协整检验、格兰杰因果检验以及VAR模型,对人民币汇率波动与股票价格报酬间关系进行了实证研究,结果发现：人民币汇率、利率、CPI和股票价格报酬之间存在长期的协整关系,且人民币汇率对股票价格报酬有正的影响效应,CPI对股票价格报酬也有一定的正向影响,而利率对股票价格报酬有负向影响效果。     

人民币汇率波动对股票价格影响的实证研究

文章基于我国2005年7月-2010年2月的时间序列数据，采用单位根检验、协整检验、格兰杰因果检验以及VAR模型，对人民币汇率波动与股票价格间关系进行了实证研究，结果发现：人民币汇率、利率、CPI和股票价格之间存在长期的协整关系，且人民币汇率对股票价格有正的影响效应，CPI对股票价格也有一定的正向影响，而利率对股票价格有负向影响效果。     

DETERMINANTS OF FOREIGN INSTITUTIONAL INVESTMENT IN INDIA: THE ROLE OF RETURN,RISK, AND INFLATION

The present study examines the determinants of foreign institutional investments (FII) in India, which by January 2003 almost exceeded U.S. $12 billion. Given the huge volume of these flows and their impact on the other domestic financial markets, understanding the behavior of the flows becomes very important, especially at a time of liberalizing the capital account. By using monthly data, we found that FII inflow depends on stock market returns, inflation rates (both domestic and foreign), and ex‐ante risk. In terms of magnitude, the impact of stock market returns and the ex‐ante risk turned out to be the major determinants of FII inflow. Unlike some of the other investigations of this topic, our study has not found any causative link running from FII inflow to stock returns. Stabilizing stock market volatility and minimizing the ex‐ante risk would help to attract more FII, an inflow of which has a positive impact on the real economy.     

RISK–RETURN TRADE‐OFF AND BEHAVIOUR OF VOLATILITY ON THE SOUTH AFRICAN STOCK MARKET: EVIDENCE FROM BOTH AGGREGATE AND DISAGGREGATE DATA

The study analyses the nature and behaviour of volatility, the risk–return relationship and the long‐term trend of volatility on the South African equity markets using aggregate level, industrial level and sectoral level daily data for the period 1995‐2009. By employing dummy variables for the Asian and the sub‐prime financial crises and the 11 September political shock, the study further examines whether the long‐term trend of volatility structurally breaks during financial crises and major political shocks. Three time‐varying generalised autoregressive conditional heteroskedasticity models were employed: one of them symmetric, and the other two asymmetric. Each of these models was estimated based on three error distributional assumptions. The findings of the study are as follows: First, volatility is largely persistent and asymmetric. Second, risk at both aggregate and disaggregate level is generally not a priced factor on the South Africa (SA) stock market. Third, the threshold autoregressive conditional heteroscedasticity (TARCH) model under the generalised error distribution is the most appropriate model for conditional volatility of the SA stock market. Fourth, volatility generally increases over time, and its trend structurally breaks during financial crises and major global shocks. The policy and investment implications of the findings are outlined.     

THE RELATIONSHIP BETWEEN INTERNATIONAL EQUITY MARKET BEHAVIOUR AND THE JSE

This paper investigates empirically the relationship between domestic and international market returns and volatilities, using the London Stock Exchange as the international market proxy. In order to address problems of widely differing bourse composition, the relationships are tested at both the broad bourse index level and the sectoral sub‐indices level. The paper finds significant evidence of a positive relationship between foreign returns and domestic returns and, in addition, between foreign volatility and domestic volatility. It is found that, for most sectors, the main association period is during the same concurrent trading day, although there are additional significant lags present in most of the series. Strong evidence is also found that the magnitude of volatility on the JSE and most of its sub‐indices reacts far more to negative shocks than it does to positive shocks.     

Characteristics and performance of institutional and foreign investors in Japanese and Korean stock markets

This study examines the characteristics of the stock ownership by institutional and foreign investors, as well as their effects on stock price performance in Japan and Korea. The main results of this study are summarized as follows. First, foreign investors have a clearer preference for stocks with large capitalization and low book-to-market ratios than do institutional investors in both Japanese and Korean stock markets. Second, foreign investors prefer stocks with a high return on equity, especially in Korea. Third, average returns have more apparent differentiation among institutional (foreign) ownership portfolios than among foreign (institutional) ownership portfolios in Japan (Korea). Fourth, the stocks that are preferred simultaneously by both institutional and foreign investors show statistically significant positive abnormal returns in both Korea and Japan, whereas those preferred by either institutional or foreign investors show statistically significant positive abnormal returns only in Korea. The institutional investors' incentive for stock holding, the extent of stock market efficiency, and stock price polarization could be the possible explanations for the different empirical results observed for Japan and Korea. J. Japanese Int. Economies 21 (2) (2007) 195–213.     

The Korean stock market volatility during the currency crisis and the credit crisis

This paper studies the volatility of the Korean stock market during the Asian currency crisis of 1997–1998 and the global credit crisis of 2008–2009. We use a fad model with Markov switching heteroskedasticity, which was first proposed by Kim and Kim (1996). Using the monthly data from January 1980 to October 2009, we find that the volatility of the transitory component of the stock return, or fads, increased during the currency crisis, but did not rise much during the credit crisis. It implies that the stock price fluctuations were not driven by irrational sentiments during the recent global crisis as much as during the former crisis. However, when we consider the dollar value of the Korean stock index in order to estimate the volatility that foreign investors confront, we find that the volatility of the transitory component was raised during the credit crisis as well as during the currency crisis. That is, foreign investors experienced greater volatility than domestic investors in the recent financial market turmoil. This asymmetric volatility that domestic and foreign investors face is one of the characteristics of the credit crisis.For more detailed analysis, the same model was applied to the weekly data from January 2005 to October 2009 and provided the result that the data measured by won–dollar exchange rates were more increased than the raw data. It holds that foreign investors confronted much greater volatility than domestic investors while the stock volatility was relatively lower in the credit crisis state than in the currency crisis state.     

Currency Exposure in China under the New Exchange Rate Regime: National Level Evidence

The present paper studies China's national level currency exposure since 2005 when the country adopted a new exchange rate regime allowing the renminbi (RMB) to move towards greater flexibility. Using generalized autoregressive conditional heteroskedastic and constant conditional correlation‐generalized autoregressive conditional heteroskedastic methods to estimate the augmented capital asset pricing models with orthogonalized stock returns, we find that China equity indexes are significantly exposed to exchange rate movements. In a static setting, there is strong sensitivity of stock returns to movements of China's tradeweighted exchange rate, and to the bilateral exchange rates except the RMB/dollar rate. However, in a dynamic framework, exposure to all the bilateral currency pairs under examination is significant. The results indicate that under the new exchange rate regime, China's gradualist approach to moving towards greater exchange rate flexibility has managed to keep exposure to a moderate level. However, we find evidence that in a dynamic setting, the exposure of the RMB to the dollar and other major currencies is significant. For China, the challenge of managing currency risk exposure is looming greater.     

汇率、股票市场及房地产价格波动的关联性研究

文章利用时变相关的多元波动率模型,对美元汇率、上证指数以及地产指数的逐日数据建立三元时变相关的广义自回归条件方差（TV—GARCH）模型,从而得出三者的波动性特征以及其显著的时变相关系数,可知地产价格的收益率波动最大。汇率与地产指数、上证指数的相关关系复杂,可存在正相关或负相关关系,而股票市场与房地产市场间存在正向相关关系,且相关系数的大小随时间变化。     

MACROECONOMIC UNCERTAINTY AND CONDITIONAL STOCK MARKET VOLATILITY IN SOUTH AFRICA*

This paper analyses how systematic risk emanating from the macroeconomy is transmitted into stock market volatility using augmented autoregressive Generalised Autoregressive Conditional Heteroscedastic (AR‐GARCH) and vector autoregression (VAR) models. Also examined is whether the relationship between the two is bidirectional. By imposing dummies for the 1997‐1998 Asian and the 2007‐2009 sub‐prime financial crises, the study further analyses whether financial crises affect the relationship between macroeconomic uncertainty and stock market volatility. The findings show that macroeconomic uncertainty significantly influences stock market volatility. Although volatilities in inflation, the gold price and the oil price seem to play a role, it is found that volatility in short‐term interest rates and exchange rates are the most important, suggesting that South African domestic financial markets are increasingly becoming interdependent. Finally, the results show that financial crises increase volatility in the stock market and in most macroeconomic variables, and, by so doing, strengthen the effects of changes in macroeconomic variables on the stock market.     

LONG MEMORY IN SOUTHERN AFRICAN STOCK MARKETS

The paper examines long memory in equity returns and volatility for stock markets in Botswana, South Africa and Zimbabwe using the ARFIMA‐FIGARCH model in order to assess the efficiency of these markets in processing information. The findings are diverse. Significant long memory is demonstrated in the equity returns of Botswana; while, in South Africa this result is not statistically different from zero. For Zimbabwe returns are characterised by an anti‐persistent process. Furthermore, all the markets investigated provide evidence of long memory in volatility with the exception of Botswana where there is no evidence of volatility persistence and hence the return from taking risk in this market cannot be predicted on the basis of previous values.