Now showing 1 - 6 of 6
  • Publication
    Investigating sources of unanticipated exposure in industry stock returns
    (University College Dublin. School of Business. Centre for Financial Markets, 2009) ;
    This paper investigates the degree of both foreign exchange rate and interest rate exposure of industry level portfolios in the G7. Our paper draws on the efficient market hypothesis and examines the extent of unexpected foreign exchange (and interest rate) exposure rather than the standard approach of focusing purely on the change in foreign exchange (and interest rate) exposure. The results from our baseline regressions are consistent with those previously found in the literature that there is little evidence of exchange rate exposure in most markets - this is the exchange rate exposure puzzle. The second critical element of our analysis is that we investigate the sources of the exposure and examine the existence of indirect levels of both foreign exchange and interest rate exposure. The findings of exposure to foreign exchange rates and interest rates are extensive for industry sectors in the G7 economies when we take account of the possible channels of influence. Results indicate key differences between countries in terms of the relative importance of these cash flow and discount rate channels.
  • Publication
    UK Stock returns & the impact of domestic monetary policy shocks
    (University College Dublin. School of Business. Centre for Financial Markets, 2005-10-21) ; ;
    We investigate the influence of changes in UK monetary policy on UK stock returns and the possible reasons behind such a response. Firstly, we conduct an event study to assess the impact of unexpected changes in monetary policy on aggregate and sectoral stock returns. The decomposition of unexpected changes in the policy rate is based on futures markets data. Secondly, using a variance decomposition in the spirit of Campbell (1991) we attempt to identity the channels behind the response of stock returns to monetary policy surprises. The variance decomposition results indicate that the monetary policy shock leads to a persistent negative response in terms of future excess returns for a number of sectors.
  • Publication
    European monetary policy surprises : the aggregate and sectoral stock market response
    (University College Dublin. School of Business. Centre for Financial Markets, 2005-12) ; ;
    In this paper we investigate the stock market response to international monetary policy changes in the UK and Germany. Specifically, we analyse the impact of (un)expected changes in UK and German/euro area policy rates on UK and German aggregate and sectoral stock returns in an event study. The decomposition of the (un)expected changes in policy rates are based on futures markets. Overall, our results suggest that, UK monetary policy surprises have a significant negative influence on both aggregate and industry level stock returns in both the UK and Germany. The in uence of German/Euro area monetary policy shocks appears insignificant for both countries.
  • Publication
    International influences on Irish stock returns
    (University College Dublin. School of Business. Centre for Financial Markets, 2004-03) ;
    We examine the influence of US and UK macroeconomic and financial variables on Irish stock returns in a nonlinear framework. We allow for time variation via regime switching using a smooth transition regression (STR) model. Importantly we find that both US and UK stock returns are significant determinants of Irish returns. Further,US returns are an important transition variable. Additionally,we show that both the US industrial production growth and changesin short term interest rates play an important role in explaining Irish stock returns. A two transition variable model finds that US short term interest rate changes exert a secondary nonlinear influence on Irish returns. The significance of US variables is reflective of the influence of US investment in the Irish economy.
  • Publication
    Monetary policy surprises and international bond markets
    (University College Dublin. School of Business. Centre for Financial Markets, 2006-10-04) ; ;
    We examine the impact and possible pillovers effects of unanticipated monetary policy on international bond returns. First, we decompose international bond returns into news regarding future returns, real interest rates and future inflation in the spirit of Campbell and Ammer (1993) for Germany, the UK and the US. We next assess how excess bond returns in these three countries are affected by surprise changes in monetary policy in each country. Our measure of the unanticipated element of monetary policy is based on futures markets rather than the more traditional vector autoregression. Our results indicate that excess bond returns primarily react to domestic as compared to foreign monetary policy surprises. We also find there is a strong divergence between the effects of domestic monetary on excess bond returns in Germany relative to the UK with a surprise monetary tightening in former(latter) leading to a rise(fall)in the excess holding period return and this appears to be driven by news regarding lower(higher) inflation expectations and could be potentially rationalised by differences in the credibility of the monetary policy authority in each country.
  • Publication
    Correlation dynamics between Asia-Pacifc, EU and US stock returns
    (University College Dublin. School of Business. Centre for Financial Markets, 2007) ; ;
    This paper investigates the correlation dynamics in the equity markets of 13 Asia-Pacific countries, Europe and the US using the asymmetric dynamic conditional correlation GARCH model (AG-DCC-GARCH) introduced by Cappiello, Engle and Sheppard (2006). We find significant variation in correlation between markets through time. Stocks exhibit asymmetries in conditional correlations in addition to conditional volatility. Yet asymmetry is less appar- ent in less integrated markets. The Asian crisis acts as a structural break, with correlations increasing markedly between crisis countries during this period though the bear market in the early 2000s is a more significant event for correlations with developed markets. Our findings also provide further evidence consistent with increasing global market integration. The documented asymmetries and correlation dynamics have important implications for international portfolio diversification and asset allocation.