Title: Uncovered Equity“Disparity”in Emerging Markets
Speaker: Dr.YAN Cheng (Durham University)
Time: Friday, May 12, 2017, 14:00
Venue: Room 202, South Wing, B10 Building, University Town Campus
Abstract: The portfolio-rebalancing theory of Hau and Rey (2006) yields uncovered equity parity (UEP) as a prediction that local-currency equity return appreciation is offset by currency depreciation. Contrary to UEP, estimations of vector autoregressive models for eight Asian emerging markets using daily data reveals a positive nexus between equity returns and currency returns. The extent of the uncovered equity“disparity”is time-varying and asymmetric as it exacerbates in crisis. We find evidence that the UEP failure is due to investors’ return chasing. Robustness checks suggest that this explanation is not an artifact of changing global volatility conditions or a flight-to-quality phenomenon.
