Exchange rate movements and stock market returns in a regime-switching environment: Evidence for BRICS countries

We use a regime-switching model approach to investigate the dynamic linkages between the exchange rates and stock market returns for the BRICS countries (Brazil, Russia, India, China and South Africa). The univariate analysis indicates that stock returns of the BRICS countries evolve according to tw...

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Bibliographic Details
Published in:Research in international business and finance 2014-05, Vol.31, p.46-56
Main Authors: Chkili, Walid, Nguyen, Duc Khuong
Format: Article
Language:English
Subjects:
BRICS countries
Foreign exchange rate
Markov switching VAR
Stock markets
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Summary:We use a regime-switching model approach to investigate the dynamic linkages between the exchange rates and stock market returns for the BRICS countries (Brazil, Russia, India, China and South Africa). The univariate analysis indicates that stock returns of the BRICS countries evolve according to two different regimes: a low volatility regime and a high volatility regime. On the other hand, our evidence from Markov switching VAR models suggests that stock markets have more influence on exchange rates during both calm and turbulent periods. These empirical insights have important implications for portfolio investments and currency risk hedging.
ISSN:0275-5319
1878-3384
DOI:10.1016/j.ribaf.2013.11.007