Version 1
: Received: 8 August 2022 / Approved: 10 August 2022 / Online: 10 August 2022 (09:32:45 CEST)
How to cite:
Muteba Mwamba, J.W.; Mudiangombe Mudiangombe, B. Dynamic Asymmetric Effect of Currency Risk Pricing of Exchange Rate on Equity Markets: A Regime-Switching based C-Vine Copulas Method. Preprints2022, 2022080196. https://doi.org/10.20944/preprints202208.0196.v1
Muteba Mwamba, J.W.; Mudiangombe Mudiangombe, B. Dynamic Asymmetric Effect of Currency Risk Pricing of Exchange Rate on Equity Markets: A Regime-Switching based C-Vine Copulas Method. Preprints 2022, 2022080196. https://doi.org/10.20944/preprints202208.0196.v1
Muteba Mwamba, J.W.; Mudiangombe Mudiangombe, B. Dynamic Asymmetric Effect of Currency Risk Pricing of Exchange Rate on Equity Markets: A Regime-Switching based C-Vine Copulas Method. Preprints2022, 2022080196. https://doi.org/10.20944/preprints202208.0196.v1
APA Style
Muteba Mwamba, J.W., & Mudiangombe Mudiangombe, B. (2022). Dynamic Asymmetric Effect of Currency Risk Pricing of Exchange Rate on Equity Markets: A Regime-Switching based C-Vine Copulas Method. Preprints. https://doi.org/10.20944/preprints202208.0196.v1
Chicago/Turabian Style
Muteba Mwamba, J.W. and Benjamin Mudiangombe Mudiangombe. 2022 "Dynamic Asymmetric Effect of Currency Risk Pricing of Exchange Rate on Equity Markets: A Regime-Switching based C-Vine Copulas Method" Preprints. https://doi.org/10.20944/preprints202208.0196.v1
Abstract
This paper investigates whether currency risk is priced differently in the different sectors (industrial, financial, and basic materials) of equity markets in a sample of developed United States of America (USA) and developing economies (Brazil, India, Poland, and South Africa). The paper makes use of the following techniques: (i) Univariate Autoregressive Fractionally Integrated Moving Average andExponential General Autoregressive Conditional Heteroskedastic (ARFIMA-EGARCH), (ii) the Markov-Switching method (MS), and (iii) the Canonical Vine Copulas (C-Vine) techniques. Using a sample of daily data made of the foreign exchange rate against the domestic currency and equity market sectors; our findings show that there is an asymmetry effect between equities markets and the foreign exchange rate: there is a heterogeneous, strong, and positive dependence between the two. Higher equities prices are associated with depreciation of local currencies, according to US dollar (USD) exchange rates. In addition, we find that the selected emerging economies are pricing a positive and considerable currency risk. The pricing of currency risk has a varied effect in both regimes representing the states of the economy. In fact, when currency risk pricing has a beneficial impact on certain sectors of the economy, investors predict better returns.
Keywords
Pricing currency risk; regime-switching; sectors equity markets; state of economy; C-Vine copulas; developed; emerging
Subject
Business, Economics and Management, Finance
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
