New estimates of time-varying currency betas: A trivariate BEKK approach |
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| Affiliation: | 1. Department of Business Economics, University of Colombo, Sri Lanka;2. Department of Economics, National University of Singapore, Singapore;3. School of Business, Edith Cowan University, Australia;1. Université Côte d''Azur, SKEMA, France;2. Université Côte d''Azur, CNRS, GREDEG, France;3. Université Côte d''Azur, CNRS, GREDEG, SKEMA, OFCE-DRIC, France;1. Departamento Economía Financiera y Contabilidad, Universidad de Alicante, Crta. San Vicente del Raspeig s/n, 03690 San Vicente del Raspeig, Alicante, Spain;2. Departament d’Economia de l’Empresa, Universitat de les Illes Balears, Crta. De Valldemossa, km. 7.5, 07122 Palma de Mallorca, Illes Balears, Spain |
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| Abstract: | This paper examines the conditional time-varying currency betas from five developed markets and four emerging markets. We employ a modified trivariate BEKK-GARCH-in-mean model of Engle and Kroner (1995) to estimate the time-varying conditional variance and covariance of returns of stock index, the world market portfolio and changes in bilateral exchange rate between the US dollar and the local currency. It is found that currency betas are more volatile than those of the world market betas. Currency betas in emerging markets are more volatile than those in the developed markets. Moreover, we find evidence of long-memory in currency betas. The usefulness of time-varying currency betas are illustrated by two applications. |
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