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Dynamics of macroeconomic and financial variables in different time horizons
Jönköping University, Jönköping International Business School, JIBS, Economics, Finance and Statistics.
2012 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This dissertation consists of an introductory chapter and four papers dealing with financial issues of open economies, which can be in two broad categorizations: 1) exchange rate movements and 2) stock market interdependence. The first paper covers how the exchange rate changes affect the prices of internationally traded goods. With the variables (the price of exports in exporters’ currency and the exchange rate, both of which are in logarithmic form) being cointegrated, a model with both long- and short-run characteristics (the Error Correction Model, ECM) is formulated. By using prices of major exports from South Korea to different destinations over the world, how the markup adjustment of those exports varies with respect to changes in exchange rates is estimated empirically under the context of pricing-to-market (PTM).

The second paper relates to the standard macroeconomic models of exchange rate determination. This paper investigates the relationship between the exchange rate and the domestic-foreign interest rate differential. The associated regression model follows the form of earlier literature in testing the effect of the interest rate differential on the exchange rate although the use of wavelet-decomposed levels of the data series distinguishes this paper from the earlier empirical works.

A relevant issue associated with the relationship between export prices and exchange rates for different industries is found in the third paper. The responsiveness of firms’ profitability to changes in exchange rates (i.e. exchange rate exposure) is tested using a factor model. Following specifications of the earlier literature on this subject, returns of various industries (or sectors) of the US stock market are regressed on the changes in exchange rates as well as the excess return on the market portfolio. The Kalman filter is used to estimate time-varying coefficients (beta) of the variables at different frequencies (daily, weekly, monthly, quarterly and annually).

After the three papers noted above, the dissertation moves on to the final paper which explores the relationship between national stock markets (i.e. interdependence). The causal linkages of the U.S. stock market to each of six eastern Asian national stock markets (China, Hong Kong, Japan, Singapore, South Korea and Taiwan) as well as the causal linkages among those Asian equity markets are tested in a vector autoregression (VAR) model using wavelet-decomposed data.

Place, publisher, year, edition, pages
Jönköping: Jönköping International Business School , 2012. , 183 p.
Series
JIBS Dissertation Series, ISSN 1403-0470 ; 77
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-17943ISBN: 978-91-86345-29-7 (print)OAI: oai:DiVA.org:hj-17943DiVA: diva2:516077
Opponent
Supervisors
Available from: 2012-04-17 Created: 2012-04-17 Last updated: 2012-04-17Bibliographically approved
List of papers
1. Exchange rate fluctuations and markup adjustment: the case of manufacturing products exported from Korea
Open this publication in new window or tab >>Exchange rate fluctuations and markup adjustment: the case of manufacturing products exported from Korea
(English)In: Korea and the World EconomyArticle in journal (Refereed) Submitted
National Category
Economics
Identifiers
urn:nbn:se:hj:diva-17939 (URN)
Available from: 2012-04-17 Created: 2012-04-17 Last updated: 2014-03-24Bibliographically approved
2. The relationship between exchange rates and interest rate differentials: A wavelet approach
Open this publication in new window or tab >>The relationship between exchange rates and interest rate differentials: A wavelet approach
2012 (English)In: The World Economy, ISSN 0378-5920, E-ISSN 1467-9701, Vol. 35, no 9, 1162-1185 p.Article in journal (Refereed) Published
Abstract [en]

This paper uses wavelet analysis to investigate the relationship between the spot exchange rate and  interest rate differential for seven pairs of countries, with a small country, Sweden, included in each case. The key empirical results show that there tends to be a negative relationship between the spot exchange rate (domestic-currency price of foreign currency) and the nominal interest rate differential (approximately the domestic interest rate minus the foreign interest rate) at the shortest time scales, while a positive relationship is shown at the longest time scales. This indicates that among models of exchange rate determination using the asset approach, the sticky-price models are supported in the short-run and flexible-price models in the long-run.

National Category
Economics
Identifiers
urn:nbn:se:hj:diva-17940 (URN)10.1111/j.1467-9701.2012.01466.x (DOI)
Available from: 2012-04-17 Created: 2012-04-17 Last updated: 2017-12-07Bibliographically approved
3. Time-varying betas of sectoral returns to market returns and exchange rate movements
Open this publication in new window or tab >>Time-varying betas of sectoral returns to market returns and exchange rate movements
2013 (English)In: Applied Financial Economics, ISSN 0960-3107, E-ISSN 1466-4305, Vol. 23, no 14, 1155-1168 p.Article in journal (Refereed) Published
Abstract [en]

The time-varying behaviour of the market and exchange risk betas of the US sectoral returns are estimated using a random walk process in connection with the Kalman filter. The empirical findings, in general, show that the market risks tend to shrink over longer time horizons, and that during the dot-com bubble burst and during the subprime financial crisis they tended to rise. During these crises they rose most notably in those industries most related to the crisis. Regarding exchange risk, industry returns appear in this study to be positively related to dollar appreciation, but that relationship declines with longer time horizons, in some cases resulting ultimately in a negative relationship between the US dollar and the industry returns. This latter result is consistent with the idea that the effect of a US dollar appreciation on competitiveness of the US exports becomes stronger with the longer time horizons. During the subprime financial crisis, the relation between excess returns and the exchange rate tended to fall, as was notably the case for the Technology sector during the dot-com bubble burst.

Keyword
exchange rates risk, time-varying beta, Kalman filter, sectoral returns
National Category
Economics
Identifiers
urn:nbn:se:hj:diva-17941 (URN)10.1080/09603107.2013.797555 (DOI)
Available from: 2012-04-17 Created: 2012-04-17 Last updated: 2017-12-07Bibliographically approved
4. Price linkages between the East Asian stock markets in different time horizons
Open this publication in new window or tab >>Price linkages between the East Asian stock markets in different time horizons
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper examines the causal relationship between the US and Asian equity markets as well as the causal relationship among the Asian equity market themselves (China, Hong Kong, Japan, Singapore, Korea, and Taiwan). The links between the national stock markets of these economies and the most influential stock market, that of the US, is extensively analyzed, especially in different sample periods including three crisis periods since the late 1990s (the Asian financial crisis, dot com bubble burst, and the subprime financial crisis). This paper shows that the major equity markets in the East Asian region are closely integrated, thereby diminishing the potential for Asian portfolio diversification. The causal linkage of the US equity market to the Asian equity markets does not have notably different patterns depending on whether it is during a crisis period or not. This finding holds for the finest time scale of 1-2 days movements of the stock price indices. The influence of the US equity market is much less at larger time scales throughout all sub-sample periods. The leading role of the US equity market substantially weakens while the interdependence among the Asian equity markets is stronger at longer time scales of 8 to 16 days. A general finding is that there is evidence of varying number of causal relationships among the equity markets in this study as well as changes in directions of causality in different time scales.

 

National Category
Economics
Identifiers
urn:nbn:se:hj:diva-17942 (URN)
Available from: 2012-04-17 Created: 2012-04-17 Last updated: 2012-04-17

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