Dynamics of the relationship between stock markets and exchange rates during quantitative easing and tightening
Abstract This study utilizes two complementary models, the Time-Varying Parameter Vector Autoregressive Diebold–Yilmaz (TVP-VAR-DY) and the Time-Varying Parameter Vector Autoregressive Baruník–Křehlík (TVP-VAR-BK), to investigate the dynamic volatility transmission between exchange rates and stock r...
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| Format: | Article |
| Language: | English |
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SpringerOpen
2025-01-01
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| Series: | Financial Innovation |
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| Online Access: | https://doi.org/10.1186/s40854-024-00694-4 |
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| author | Farzaneh Ahmadian-Yazdi Amin Sokhanvar Soheil Roudari Aviral Kumar Tiwari |
| author_facet | Farzaneh Ahmadian-Yazdi Amin Sokhanvar Soheil Roudari Aviral Kumar Tiwari |
| author_sort | Farzaneh Ahmadian-Yazdi |
| collection | DOAJ |
| description | Abstract This study utilizes two complementary models, the Time-Varying Parameter Vector Autoregressive Diebold–Yilmaz (TVP-VAR-DY) and the Time-Varying Parameter Vector Autoregressive Baruník–Křehlík (TVP-VAR-BK), to investigate the dynamic volatility transmission between exchange rates and stock returns in major commodity-exporting and -importing countries. The analysis focuses on periods of quantitative easing (QE) and quantitative tightening (QT) from March 15, 2020 to December 30, 2022. The countries examined are Canada and Australia (major commodity exporters) and the UK and Germany (major commodity importers). An essential contribution of this paper is new empirical insights into the dynamics of stock market returns and the transmission of volatility between these markets and exchange rates during the QE and QT periods. The results reveal that causality primarily flows from stock markets to exchange rates, especially during the QT period across all investment horizons. The Toronto Stock Exchange (TSX) emerges as the principal net driver among the markets under study. Furthermore, the Canadian exchange rate (USDCAD) and the Australian Stock Exchange (ASX) are the most significantly affected indices within the network across various investment horizons (excluding the long-term). These findings underscore the importance for investors and policymakers to consider the interplay between exchange rates and stock market returns, particularly in the context of the QE and QT periods, as well as other economic, political, and health-related events. Our findings are relevant to various stakeholders, including governments, traders, portfolio managers, and multinationals. |
| format | Article |
| id | doaj-art-01b64b408bac4624a5f0657981eacebe |
| institution | Kabale University |
| issn | 2199-4730 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | SpringerOpen |
| record_format | Article |
| series | Financial Innovation |
| spelling | doaj-art-01b64b408bac4624a5f0657981eacebe2025-01-12T12:36:11ZengSpringerOpenFinancial Innovation2199-47302025-01-0111113210.1186/s40854-024-00694-4Dynamics of the relationship between stock markets and exchange rates during quantitative easing and tighteningFarzaneh Ahmadian-Yazdi0Amin Sokhanvar1Soheil Roudari2Aviral Kumar Tiwari3Department of Economics, Faculty of Economics and Administrative Sciences, Ferdowsi University of MashhadCambridge Resources International (CRI)Department of Economics, Faculty of Economics and Administrative Sciences, Ferdowsi University of MashhadIndian Institute of Management Bodh GayaAbstract This study utilizes two complementary models, the Time-Varying Parameter Vector Autoregressive Diebold–Yilmaz (TVP-VAR-DY) and the Time-Varying Parameter Vector Autoregressive Baruník–Křehlík (TVP-VAR-BK), to investigate the dynamic volatility transmission between exchange rates and stock returns in major commodity-exporting and -importing countries. The analysis focuses on periods of quantitative easing (QE) and quantitative tightening (QT) from March 15, 2020 to December 30, 2022. The countries examined are Canada and Australia (major commodity exporters) and the UK and Germany (major commodity importers). An essential contribution of this paper is new empirical insights into the dynamics of stock market returns and the transmission of volatility between these markets and exchange rates during the QE and QT periods. The results reveal that causality primarily flows from stock markets to exchange rates, especially during the QT period across all investment horizons. The Toronto Stock Exchange (TSX) emerges as the principal net driver among the markets under study. Furthermore, the Canadian exchange rate (USDCAD) and the Australian Stock Exchange (ASX) are the most significantly affected indices within the network across various investment horizons (excluding the long-term). These findings underscore the importance for investors and policymakers to consider the interplay between exchange rates and stock market returns, particularly in the context of the QE and QT periods, as well as other economic, political, and health-related events. Our findings are relevant to various stakeholders, including governments, traders, portfolio managers, and multinationals.https://doi.org/10.1186/s40854-024-00694-4Quantitative easingQuantitative tighteningStock returnsExchange ratesCOVID-19 crisisThe war in Ukraine |
| spellingShingle | Farzaneh Ahmadian-Yazdi Amin Sokhanvar Soheil Roudari Aviral Kumar Tiwari Dynamics of the relationship between stock markets and exchange rates during quantitative easing and tightening Financial Innovation Quantitative easing Quantitative tightening Stock returns Exchange rates COVID-19 crisis The war in Ukraine |
| title | Dynamics of the relationship between stock markets and exchange rates during quantitative easing and tightening |
| title_full | Dynamics of the relationship between stock markets and exchange rates during quantitative easing and tightening |
| title_fullStr | Dynamics of the relationship between stock markets and exchange rates during quantitative easing and tightening |
| title_full_unstemmed | Dynamics of the relationship between stock markets and exchange rates during quantitative easing and tightening |
| title_short | Dynamics of the relationship between stock markets and exchange rates during quantitative easing and tightening |
| title_sort | dynamics of the relationship between stock markets and exchange rates during quantitative easing and tightening |
| topic | Quantitative easing Quantitative tightening Stock returns Exchange rates COVID-19 crisis The war in Ukraine |
| url | https://doi.org/10.1186/s40854-024-00694-4 |
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