Title: Asset prices and exchange rates: a time dependent approach
Authors: Piccillo, Giulia
Issue Date: 2009
Publisher: KU Leuven CES
Series Title: CES - Discussion paper series 09.02 pages:1-27
Abstract: The paper studies the relationship between exchange rates and asset prices. It takes the approach of order ows to exchange rates. Specifically, it focuses on the effect of time-dependent risk aversion. The switch in the parameter causes the equilibrium of the system to alternate between two regimes: an optimistic and a pessimistic one. The paper is complete of a wide empirical section where the two equilibria are identified and specified for three of the main world markets. The regimes appear to be persistent and consistent with the existing literature on risk aversion. This also includes recent events of the financial crisis. The analysis uncovers a new development for exchange rate microstructure models. 3 of the 4 markets studied are consistent with both the order flow and the Markov switching models.

The markets analyzed are the UK, Switzerland, Germany and Japan.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Research Center of International Economics, Leuven

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