Flight-to-quality and correlation between currency and stock returns

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• 作者：Jin-Wan Cho^a ; ^{npvcho@interaag.com" class="auth_mail" title="E-mail the corresponding author} ; Joung Hwa Choi^b ; ¹ ; ^{choijh@snu.ac.kr" class="auth_mail" title="E-mail the corresponding author} ; Taeyong Kim^c ; ² ; ^{Kevin.Kim@morningstar.com" class="auth_mail" title="E-mail the corresponding author} ; Woojin Kim^b ; ³ ; ^{woojinkim@snu.ac.kr" class="auth_mail" title="E-mail the corresponding author}
• 关键词：G10 ; G11 ; G15 ; G23
• 刊名：Journal of Banking & Finance
• 出版年：2016
• 出版时间：January 2016
• 年：2016
• 卷：62
• 期：Complete
• 页码：191-212
• 全文大小：1509 K

文摘

We document that capital flows in and out of emerging or developed markets are sensitive to global equity market conditions. Capital tends to move out of emerging into developed countries in global down markets, leading to depreciation (appreciation) of emerging (developed) currencies. This generates a positive (negative) correlation between currency and equity in emerging (developed) markets which is amplified by the magnitude of the capital movement. We also verify that hedging currency risks may undo the natural hedge and increase the total return volatility under negative correlation.