Search results for "Foreign exchange risk"
showing 4 items of 14 documents
Evaluating currency crises: the case of the European monetary system
2007
In this paper we examine the nature of currency crises. We ascertain whether the currency crises of the European Monetary System (EMS) were based either on fundamentals, or on self-fulfilling market expectations driven by extrinsic uncertainty. In particular, we extend previous work of Jeanne and Masson (J Int Econ 50:327–350, 2000) regarding the evaluation of currency crisis. We contribute to the existing literature proposing the use of Markov regime-switching with time-varying transition probability model. Our empirical results suggest that the currency crises of the EMS were not due only to market expectations driven by external uncertainty, or ‘sunspots’, but also to fundamental variabl…
The introduction of the Euro and its effects on portfolio decisions
2010
Abstract Examining investment behavior related to the Euro introduction, we address the relevance of different investment determinants. With the advent of the currency union two potential sources of portfolio reallocation can be distinguished: First, the diminishment of exchange rate risk and transaction costs within the EMU. Second, the increase of correlation of EMU returns so that diversification benefits decreased. We test for structural breaks in the holdings of German investors and estimate a market model to account for the two effects. A significant decrease in national and an increase in EMU and rest-of-the-world investments can be observed. Comparing the observed holdings with benc…
The European sovereign debt market: from integration to segmentation
2013
This paper investigates the impact of European Monetary Union (EMU) and of the recent financial and fiscal crisis on the integration of the European sovereign debt market using annual data 1992–2010. The panel regression dependent variable is time-varying market linkages computed from daily realised correlations between sovereign bond returns for 13 European economies and Germany. The results indicate that the elimination of currency risk following the implementation of EMU led to a fundamental and significant one-off increase in integration. The net impact of fiscal fundamentals was negligible up until 2009 as the markets seemed to be pricing in a potential bailout for member states in cri…
Exposure to Exchange Rate Risk and Competitiveness: An Application to South-Eastern Europe
2017
Our chapter investigates the economic exposure to currency risk of stock markets from nine countries in South-Eastern Europe using bilateral exchange rates of the domestic currencies against their main trading partners’ currencies between 1999 and 2015. The relevance and magnitude of exposures are investigated through changes in exchange rates in linear and non-linear specifications. Our results indicate that these economies show contemporaneous exposure to currency risk, but they are different in size and sign from one country to another and from one currency to another, a result that can be explained by the dissimilar economic structures in the region. There is smaller evidence for asymme…