Fuertes, Ana-Maria and Phylaktis, Kate and Yan, Cheng (2019) 'Uncovered Equity “Disparity” in Emerging Markets.' Journal of International Money and Finance. ISSN 0261-5606

Text 1-s2.0-S0261560619304036-main.pdf - Accepted Version Restricted to Repository staff only until 25 January 2021. Available under License Creative Commons Attribution Non-commercial No Derivatives. Download (912kB) | Request a copy

Abstract

The portfolio-rebalancing theory of Hau and Rey (2006) yields the uncovered equity parity (UEP) prediction that local-currency equity return appreciation is offset by currency depreciation. Vector autoregressive model estimation and tests for eight Asian emerging markets using daily data reveal instead a positive nexus between equity returns and currency returns. The extent of the uncovered equity “disparity” is time-varying and asymmetric since it exacerbates in crises. Our analysis suggests that the UEP failure is primarily due to investors’ return-chasing behavior. Robustness checks confirm that this explanation of the uncovered equity “disparity” is more appropriate than existing flight-to-safety or market risk conjectures.

Item Type:	Article
Uncontrolled Keywords:	Uncovered Equity Parity, Equity flows, Equity returns, Foreign exchange rates, Return-chasing, Asian markets
Divisions:	Faculty of Social Sciences > Essex Business School Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User:	Elements
Date Deposited:	26 Jul 2019 09:08
Last Modified:	26 Jul 2019 09:08
URI:	http://repository.essex.ac.uk/id/eprint/25064

Actions (login required)

View Item