Ignoring the co-movement of international stock markets might lead to a biased estimate for the relationship between domestic stock and currency markets. We address this issue by using the US stock returns as a proxy for the movement of foreign stock markets and by applying a vine copula approach to 22 economies over the period 2003-2017. We find that both stock and currency markets in these economies are highly correlated with the US stock market during the crisis period of 2007-2012. As a result, Kendall's τ correlation between domestic stock and currency returns significantly decreases in most of the economies for the crisis period, compared with the one estimated from the non-vine bivariate model without the US stock returns. This suggests that if one does not control for the effect of foreign stock markets, the resulting bias is not negligible especially in times of financial turmoil.
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