Scaling of dependence between foreign exchange rates and stock markets in Central Europe

0472032 - ÚTIA 2017 RIV PL eng C - Conference Paper (international conference)
Krištoufek, Ladislav
Scaling of dependence between foreign exchange rates and stock markets in Central Europe.
Acta Physica Polonica A. Vol 129, n. 5 (2016) - Proceedings of the 8th Polish Symposium of Physics in Economy and Social Sciences FENS. Warszawa: Polish Academy of Science, Institute of Physics, 2016, s. 908-912. ISSN 0587-4246. E-ISSN 1898-794X.
[Polish Symposium of Physics in Economy and Social Sciences FENS (2016) /8./. Rzeszów (PL), 04.11.2015-06.11.2015]
R&D Projects: GA ČR(CZ) GP14-11402P
Institutional support: RVO:67985556
Keywords : stock markets * scale dependence * currency
Subject RIV: AH - Economics
http://library.utia.cas.cz/separaty/2016/E/kristoufek-0472032.pdf

We propose two novel methodological approaches - the detrending moving average based regression coefficient estimator and the scale-dependent instrumental variable estimator - and show their utility on a specific case of dependence between stock markets and connected foreign exchange rates in the Central European region - the Czech Republic, Hungary and Poland. The methodology has proven useful as we uncovered several interesting findings such as scale dependence of the shock transmission and differences between the Euro and U.S. dollar currency pairs. The Polish currency is also the most sensitive of the three with respect to the stock market shocks. The proposed methodology can be applied to any system with potential endogeneity issues if one is interested in the scale variability of the effect of interest.
Permanent Link: http://hdl.handle.net/11104/0269400