Foreign exchange risk premiums and time-varying equity market risks

International Journal of Risk Assessment and Management

Volumn 4, Issue 4, 2003, Pages 310-331

  Chiang, Thomas C ^a   Yang, Sheng Yung ^b  

^a DREXEL UNIVERSITY   (United States)

^b NATIONAL CHUNG HSING UNIVERSITY   (Taiwan)

Author keywords

exchange rate risk; multivariate GARCH; risk premiums; volatility

Indexed keywords

EID: 36749055261     PISSN: 14668297     EISSN: 17415241     Source Type: Journal    
DOI: 10.1504/IJRAM.2003.003828     Document Type: Article

References (48)

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30. In the standard capital asset pricing model (one factor model) where the domestic market is independent of the foreign market, it is assumed that β*:2 = 0 in Equation (2) and ßj2 = 0 in Equation (3).
31. Strictly speaking, equation (4) relies not only on market efficiency but also on the lack of impediments to trade or transaction costs, risk neutrality and profit maximising, rational and homogenous expectations.
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34. In those models the expected nominal speculative profit for a particular currency is related to the world index or to the risk premium in the US equity market alone.
35. Many empirical studies document supportive evidence for the relationship between expected equity premiums and ex ante stock return variances (e.g., French et al. [22]).
36. Although we focus on the risk from equity markets, other risk factors, such as political risk or purchasing power risk, may also be reflected in the variations of equity risk.
37. The stock-market indices for the Netherlands and Sweden are from 1980:1:4 and 1982:9:3, respectively.
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48. The cross-correlation function is not reported. We also perform the Schwarz criteria for the choice of lag length in the VAR. In the most cases the minimized value of the criteria is associated with the second-order system.