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- W181259849 abstract "In this dissertation we document a large positivecorrelation between the financial index return of a home countryminus a rest-of-the world portfolio return, where both aremeasured in the home currency, and the return on a domesticcurrency basket index. This equity-currency comovement holds forall of our 19 OECD countries with free-floating exchange rates.This correlation implies that domestic equity market performancecompared to “the rest of the world” comoves with its currencyperformance. We also provide additional evidence ofequity-currency comovement for country pairs, by emphasizingpositive correlation between foreign minus home equity markets’returns both measured in home currency and foreign currencyreturns. We proceed to document that for any pair of the countriesthe volatility of the difference between equity market returnsmeasured in local currencies is always greater than that of thebilateral exchange rate. This finding yields an upper bound forthe correlation corresponding to equity currency comovement. Atwo-country complete markets model with CRRA preferences andinter-country correlated long-run shocks to consumption growthhelps explain such equity-currency comovement. We emphasize thatit is not the case that currency returns drive relative equityreturns across countries or vice versa. We show thatequity-currency comovement is a result of the dynamics of relativeshort-run and relative long-run consumption growth shocks acrosscountries. For our 19 OECD countries we document that thecorrelation between foreign minus domestic equity returns, bothmeasured in local currencies, and foreign currency returns ispositive for roughly half of the country pairs and negative for theothers. The model with CRRA preferences predicts that such acorrelation must be negative and thus fails to account for apossible positive sign. We show that a combination of long-runrisks and Epstein-Zin preferences is sufficient to yield eithersign for this correlation." @default.
- W181259849 created "2016-06-24" @default.
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- W181259849 date "2011-01-01" @default.
- W181259849 modified "2023-09-23" @default.
- W181259849 title "Essays on Comovement of Equity and Currency Returns" @default.
- W181259849 hasPublicationYear "2011" @default.
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