Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5088475 | Journal of Banking & Finance | 2016 | 22 Pages |
Abstract
We document that capital flows in and out of emerging or developed markets are sensitive to global equity market conditions. Capital tends to move out of emerging into developed countries in global down markets, leading to depreciation (appreciation) of emerging (developed) currencies. This generates a positive (negative) correlation between currency and equity in emerging (developed) markets which is amplified by the magnitude of the capital movement. We also verify that hedging currency risks may undo the natural hedge and increase the total return volatility under negative correlation.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Jin-Wan Cho, Joung Hwa Choi, Taeyong Kim, Woojin Kim,