The recent episodes of sanctions on Russia by international communities and the quan-
titative easing by Japanese and European central banks highlight the importance of foreign
exchange risk for international investors. This paper examines how and to what extent the
volatility of exchange rate affect the volatility of local equity market for Latin American
countries and transition economies. Compared to Mun [15], we find that the proportions of
volatility of local equity market attributable to exchange rate fluctuations for Latin American
countries and transition economies are much larger than those for more developed economies.
Besides, an increase in exchange rate volatility is associated with an increase in the corre-
lation between the local and the US equity markets for Latin American countries but with
a decrease in the correlation for transition economies, both to a larger extend than devel-
oped countries. In particular, our study indicates that the sign of the conditional correlation
coefficient between exchange rate and local equity market varies across countries and time,
inconsistent with the prediction by the so called “equity parity condition” in Hau and Rey
[8].
關聯:
International Journal of Information and Management Sciences 26 (3), pp.219-238
