Time-Varying Currency Betas: Evidence from Developed and Emerging Markets

Prabhath Jayasinghe, Albert K. Tsui
JEL codes: 
SCAPE Working Paper Series

This paper examines the conditional time-varying currency betas
from five developed markets and four emerging markets. A trivariate
BEKK-GARCH-in-mean model is used to estimate the timevarying
conditional variance and covariance of returns of stock
index, the world market portfolio and changes in bilateral exchange
rate between the US dollar and the local currency of each country. It
is found that currency betas are more volatile than those of the world
market betas. Currency betas in emerging markets are more volatile
than those in developed markets. Moreover, we find evidence of
long-memory in currency betas. The usefulness of time-varying
currency betas are illustrated by two applications.