Abstract
This paper provides evidence of a significant exchange rate effect on stock index returns using data from seven selected countries practicing free-floating exchange rate regimes. This research uses parity and asset pricing theories, thus placing it within the monetary-cum-economics framework for international asset pricing. In this study, we apply a system of seemingly unrelated regression to control for unobserved heterogeneity and cross-sectional dependence. The findings constitute evidence of a statistically significant exchange rate impact on stock index returns across selected countries. These findings can be considered as falling under the arbitrage pricing approach of the international capital asset pricing model of Solnik who also used the parity-theoretical framework on exchange rate determination.
| Original language | English |
|---|---|
| Pages (from-to) | 1277-1288 |
| Number of pages | 12 |
| Journal | European Journal of Finance |
| Volume | 25 |
| Issue number | 14 |
| Early online date | 21 Mar 2019 |
| DOIs | |
| Publication status | Published - 22 Sept 2019 |
| Externally published | Yes |
Bibliographical note
This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance, on 21/03/2019, available online: http://www.tandfonline.com/doi/full/10.1080/1351847X.2019.1589550Keywords
- arbitrage pricing
- Exchange rates
- international asset pricing
- macroeconomic factor
- parity factors
ASJC Scopus subject areas
- Economics, Econometrics and Finance (miscellaneous)