Document Type
Article
Language
eng
Publication Date
Winter 2016
Publisher
Tehran Municipality
Source Publication
International Journal of Human Capital in Urban Management
Source ISSN
2476-4698
Abstract
This paper investigates empirically the effect of volatility of the exchange rate of the U.S. dollar vis-à-vis the euro on U.S. stock market volatility while controlling for a number of drivers of stock return volatility. Using a GARCH(1, 1) model and using weekly data covering the period from the week of January 1, 1999 through the week of January 25, 2010, it is found that the 9/11 terrorist attack, bear markets, fluctuations in jobless claims, and negative equity market returns increase financial volatility. On the other hand, no conclusive results are found regarding the effect of fluctuations in M2, or incorrect expectations of changes in the federal funds target rate. Finally, it is found that when major drivers of financial volatility are controlled for, increased exchange rate volatility exerts a positive and statistically significant effect on the volatility of stock returns. Monetary policymakers need to take this effect into account when formulating exchange rate actions within the prevailing managed float.
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Kennedy, K. and Nourzad, Farrokh, "Exchange Rate Volatility and its Effect on Stock Market Volatility" (2016). Economics Faculty Research and Publications. 582.
https://epublications.marquette.edu/econ_fac/582
Comments
Published version. International Journal of Human Capital in Urban Management, Vol. 1, No. 1, Article 5 (Winter 2016): 37-46. DOI. International Journal of Human Capital in Urban Management is licensed under a
"Creative Commons Attribution 4.0 International (CC-BY 4.0)"