Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
961528 | Journal of Financial Markets | 2016 | 27 Pages |
Abstract
We show that Hau and Rey׳s (2006) empirical evidence is not sufficient to support their risk-rebalancing theory as an explanation for the negative correlation between the stock market return differential and currency. A simple model combining home-wealth rebalancing and extrapolative expectations on the foreign stock predicts this negative correlation only when the host market is a source of international capital. Panel regressions indicate that the source status of the economy (i.e., whether it is a net receiver or source of international capital) is a main predictor of the stock return differential-currency correlation.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Numan Ãlkü, Sabutay Fatullayev, Daria Diachenko,