Exchange rate regime, volatility and international correlations on bond and stock markets

Article Abstract:

Research studies have been conducted on the existence of significant differences in the patterns of volatilities and international correlations between exchange rate mechanism (ERM) and non-ERM countries in the European Monetary System. The studies also indicated that as the volatility of foreign exchange rate increases, the incidence of international correlations between bond and domestic stock markets tend to decrease. These findings support the theory that exchange rate regime and volatility are principal determinants of variances and covariances of returns.

Foreign Currency Management, Models, International economic relations, Analysis of variance

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Are there rational bubbles in foreign exchange markets? Evidence from an alternative test

Article Abstract:

The validity of theories on the effect of speculative activity on the movement of foreign exchange is discussed. Using the Kalman filter method and a monetary model, it is shown that the change in value of the dollar vis-a-vis the yen, the pound and the deutsche mark was not caused by any 'bubble' activity in financial markets but by other factors. This conclusion runs counter to the results of many other studies which point to the speculative aspect of exchange rate determination.

Economic aspects, Speculation

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Exchange rate risk and internationally diversified portfolios

Article Abstract:

The impact of foreign exchange risk on a diversified foreign investment portfolio is discussed. Using a particular portfolio optimization approach, it is shown that multiple acquisitions of stocks abroad is a good policy except in cases where a lot of fluctuations characterize exchange rate movement. For diversifying companies, the best stock to acquire would be common stock since it does not only give the highest returns but is less affected by exchange rate volatility.

International aspects, Portfolio management

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