Quarterly Publication of Multinational Finance Society • ISSN 1096-1879

The Effect of Intervaling on the Foreign Exchange Exposure of Australian Stock Returns
(Multinational Finance Journal, 2001, vol. 5, no. 1, pp. 1-33)

Amalia Di Iorio
RMIT University, Australia
Robert Faff
RMIT University, Australia

This article analyzes the impact of movements in the Australian dollar/Japanese yen (AUDJPY) and the Australian dollar/US dollar (AUDUSD) exchange rates on the returns of the Australian equities market. Specifically, this paper investigates the nature of exchange rate exposure across increasing return measurement intervals, enabling an examination of both its short-term and its long-term effect on stock returns. Consistent with previous literature, considerable evidence of long-term exchange rate exposure is found. Further, it is found that in the long-term the Australian equities market in general is exposed to fluctuations in the AUDJPY, while only some Australian industries are exposed to movements in the AUDUSD. Finally, convincing evidence in terms of the determinants of foreign exchange exposure is not found (JEL G12, G15).

Keywords: Australian stock market, exchange rate risk, intervaling.

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The Adjustment of the Yule-Walker Relations in VAR Modeling: The Impact of the Euro on the Hong Kong Stock Market
(Multinational Finance Journal, 2001, vol. 5, no. 1, pp. 35-58)

Timothy J. Brailsford
The Australian National University, Australia
Jack H.W. Penm
The Australian National University, Australia
R. Deane Terrell
The Australian National University, Australia

Vector autoregressive models are increasingly being used in the analysis of relationships within and between financial markets. In such models, there are circumstances that require zero entries in the coefficient matrices. Such circumstances can be particularly relevant in the context of markets with special characteristics, such as emerging economies. This paper shows that a direct extension of the use of the Yule-Walker relations for fitting vector autoregressive models with zero-non-zero patterned coefficient matrices is inconsistent with statistical procedures as the resultant estimated variance-covariance matrix of the white noise disturbance process becomes non-symmetric. This inconsistency can cause a breakdown when testing financial theory. The paper provides a consistent adjustment which fits with the theory. The practical use of the adjustment is demonstrated in a vector system comprising variables from the Hong Kong stock market and foreign exchange markets (JEL C13, C32, C63, G10, G15).

Keywords: foreign exchange market, time series, VAR models, Yule-Walker relations.

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Can the Forecasts Generated from E/P Ratio and Bond Yield be Used to Beat Stock Markets?
(Multinational Finance Journal, 2001, vol. 5, no. 1, pp. 59-86)

Wing-Keung Wong
National University of Singapore, Singapore
Boon-Kiat Chew
Independent Economic Analysis (Holdings) Limited
Douglas Sikorski
National University of Singapore, Singapore

This paper tests the performance of stock market forecasts derived from technical analysis by means of a specific indicator. The indicator is computed from E/P ratios and bond yields. Several stock markets are studied over a 20-year period. Two test statistics are introduced to utilize the indicator. The results show that the forecasts generated from the indicator would enable investors to escape most of the crashes and catch most of the bull runs. The trading signals provided by the indicator can generate profits that are significantly better than the buy-and-hold strategy (JEL G14, G10).

Keywords: bond yield, E/P ratio, interest rate, standardized yield differential, yield differential.

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