بازار سهام ایالات متحده و ارزش بین المللی دلار آمریکا

We investigate the spillover effect of the US equity market on the value of the dollar and therefore on the return and volatility of US equity investments for the international investor. The data are daily observations of the S & P 500 and the US dollar in terms of seven foreign currencies covering the period 1971–2002. Using Geweke measures of feedback, we find a high percentage of contemporaneous association between daily movements in the S & P 500 index and changes in the value of the dollar. A consistently positive relationship between the S & P 500 and the dollar is found for the period 1992–2002, creating a compounding effect for the foreign investor in US equities. However, investment by foreigners in US equities did not result in consistently higher returns but in higher volatility compared to their US counterparts for the period 1971–2002.

In a study of 39 global stock markets, covering the period 1921–1996, Jorion and Goetzmann (1999) report that US equities had the highest real return of all countries, at 4.3% annually, versus a median of 0.8% for the other countries. However, the return to the foreign investor is compounded by exchange risk, e.g. the movement of the US dollar versus the local currency. Fluctuating exchange rates make foreign investment more risky and, at the same time, aggravate estimation risk, thereby diminishing the gains from international diversification. Within the framework of an unconditional multi-factor asset pricing model, Jorion (1991) finds that the exchange risk is not priced for the US stock market, even though his sample covered the period of the 1970s and 1980s, a time when the US dollar appreciated dramatically. Dumas and Solnik (1995), on the contrary, show that for the world’s four largest equity markets (Germany, Japan, UK, and US) foreign exchange risk premia exist. These premia are present because of deviations from purchasing power parity.1 Foreign exchange risk premia are a significant component of securities’ rates of return in the international financial market. In a related study, De Santis and Gerard (1997) report that severe US market declines are contagious at the international level, and often imply a significant reduction in the gains from holding an internationally diversified portfolio. On average, the expected gains from international diversification are equal to 2.11% on an annual basis and have not been significantly affected by the increasing level of integration of international markets.2 These findings of Dumas and Solnik (1995) and by De Santis and Gerard (1997) indicate that currency risk is likely to be an important omitted factor in international asset pricing. Using both unconditional and conditional asset pricing models, Choi, Hiraki, & Takezawa (1998) find that exchange risk is priced and is an important component in forming time-varying expected returns on assets in Japan. However, the exchange risk is priced differently depending on the secular yen/US dollar exchange rate trend. Exchange rate uncertainty is largely a non-diversifiable factor adversely affecting the performance of international portfolios. Therefore, it is essential to effectively control for exchange risk. Eun and Resnick (1988) show that international portfolio selection strategies designed to control both estimation and exchange risk almost consistently outperform the US domestic portfolio in out-of-sample periods. Considering the commanding role of the US economy and the US dollar for the world economy, we investigate the spillover effect of the US equity market on the international value of the US dollar. In particular, we investigate whether movements in US equities have an impact on the US dollar value and therefore on the return and volatility of US equity investments for the international investor. For the three most actively traded currencies (DM, Yen, and Swiss franc) Jorion (1995) finds that implied volatilities inverted from the Black–Scholes model for short-term at-the-money options on these currencies, are biased volatility forecasts. The information content and predictive power of implied standard deviations appear too variable relative to future volatility. Recently, Hau (2002) reports that economic openness and real exchange rates volatility are inversely related. A high degree of trade integration tends to produce more stable real exchange rates. Using Geweke feedback measures we examine the contemporaneous or lead/lag relationship between the US equity market and the US dollar. We observe a trong positive association between the performance of the US stock market and the international value of the US dollar since 1992. Because of the compounding effect of exchange risk, positive movements in US equities are associated with a strengthening in the dollar offering a double win for the international investor. However, US stock market declines are found to coincide with a drop in the value of the US dollar, making international investors suffer double due to the compounding effect of exchange risk. The paper is organized as follows. In the second section, we describe the data and the econometric methodology and formulate the hypotheses. The third section provides the empirical results. Some concluding comments are offered in the final section.

Exchange rate volatility is a major source of macro-economic uncertainty affecting investors in an open economy. We examine the spillover effect of the US equity market on the international value of the US dollar. Using Geweke measures of feedback, we find a high percentage (92 at the 1% level) of contemporaneous association between daily movements in the S & P 500 index and changes in the value of the dollar against seven foreign currencies. A consistently strong positive relationship between the S & P 500 and the dollar value is found for the period 1992–2002, creating a compounding effect for the foreign investor in US equities. However, investment by foreigners in US equities did not result in consistently higher returns but in higher volatility compared to their US counterparts for the period 1971–2002. Contrary to the contemporaneous movement, Geweke unidirectional feedback measures could not confirm the existence of any association between changes in the S & P 500 index and changes in the value of the dollar 1–5 days later or vice versa.