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Please refer to this blog post for more information. Shocks to the system have different impacts on different variables in debt and equity markets between the states across the countries. This paper investigates whether the deviation of a currency from its fundamentally determined rate of return affects the relationship between interest rates and stock market yields.

A time-varying transition probability, the Markov-switching vector autoregressive MS-VAR model, is utilized for this purpose. Wald and likelihood ratio tests are computed and used as model adequacy measures. In order to analyze the link between the variables, impulse—response functions are employed.

A sticky price exchange rate model is used to show the fundamentally determined rate of return of currencies. States are defined as either overvalued or undervalued, depending on the position of the observed exchange rate compared to its fundamentally determined rate.

The model is applied to four major currencies: Transition between the states is linked to the risk-adjusted excess return the Sharpe ratio of the debt and equity markets of the respective currencies in order to understand whether over- and undervaluation is connected to the returns in these markets.

The results provide evidence that the relationship between economic fundamentals correlation between fx equity markets nominal correlation between fx equity markets rates are subject to change depending on the over- or undervaluation of the currencies relative to their fundamentally determined rate of return.

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Please enable JavaScript to use all the features on this page. Economic Systems Volume arti pmi forex, Issue 4DecemberPages The dynamic relationship between stock, bond and foreign exchange markets.

Author links open the author workspace. Opens the author workspace a. Numbers and letters correspond to the affiliation list. Click to expose these in author workspace Ferhat Arslaner. Opens the author workspace Opens the author workspace b.

Click to expose these in author workspace c. Click to expose these in author workspace Nuran Arslaner. Opens the author workspace d.

What is the correlation between American stock prices and the value of the U.S. dollar?

Click to expose these in author workspace a Central Bank of the Republic of Turkey, Istiklal Cad. Program in Economics, The Graduate Center of the City University of New York, USA d Central Bank of the Republic of Turkey, Bankalar Cad.

Abstract This paper investigates whether the deviation of a currency from its fundamentally determined rate of return affects the relationship between interest rates and stock market yields.

How the Stock Market Affects the Forex Market - odomujekadox.web.fc2.com

Markov-switching vector autoregressive model. Check if you have access through your login credentials or your institution. Elsevier About ScienceDirect Remote access Shopping cart Contact and support Terms and conditions Privacy policy.

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