Dynamic Relations between International Equity and Currency Markets: The Role of Currency Order Flow

45 Pages Posted: 7 Sep 2004

See all articles by Bill B. Francis

Bill B. Francis

University of South Florida - College of Business Administration

Delroy M. Hunter

University of South Florida

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Abstract

Previous research on the dynamic linkages between international financial markets focused on bivariate inter-equity or inter-currency relationships and do not allow a specific role for the currency or equity market, respectively. In this paper, we hypothesize that there are important, yet not well understood, dynamic relationships between international equity and currency markets and that these are driven by information spillover via the mechanism of currency order flow. Using a trivariate asymmetric GARCH framework, we find that the relationships between equity and currency markets are significant, bi-directional, and pervasive. These relationships, which co-exist with the relationships between US and foreign equity markets, are much stronger in the volatilities than in the means. Importantly, we find strong support for our information-spillover hypothesis where currency order flow is the economic mechanism by which information is transmitted.

Keywords: Currency order flow, international financial markets, volatility spillover, information spillover

JEL Classification: C32, F31, G12, G14, G15

Suggested Citation

Francis, Bill B. and Hunter, Delroy M. and Hasan, Iftekhar, Dynamic Relations between International Equity and Currency Markets: The Role of Currency Order Flow. Available at SSRN: https://ssrn.com/abstract=586528

Bill B. Francis

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Dept. of Finance
Tampa, FL 33620-5500
United States
813-974-6300 (Phone)
813-974-3030 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/finance/facult

Delroy M. Hunter (Contact Author)

University of South Florida ( email )

Dept of Finance, Muma College of Business
4202 E. Fowler Ave, BSN3403
Tampa, FL 33620
United States
(813) 843-2085 (Phone)
(813) 974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/hunter-delroy.aspx

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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