Beyond the dollar: A global perspective on exchange rate dynamics via currency factors

Trancoso, Tiago; Gomes, Sofia

doi:10.1016/j.frl.2023.104261

Cited by 1 publication

(1 citation statement)

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“…Another inherent limitation of using international indices relates to the currency in which price or total returns are reported, usually US Dollars; as global indices are enlarged, and as more companies traded on non-USD-denominated exchanges join these indices, the index dynamics may be increasingly influenced by exchange rate fluctuations. A possible workaround may be the recalculation of these indices according to currency factors, in line with the work of (Aloosh and Bekaert 2022) and (Trancoso and Gomes 2023). Looking further ahead, future studies could extend our findings by comparing a wider range of green indices with their respective parent indices, thereby providing a more comprehensive view of the green finance landscape.…”

Section: Discussionmentioning

confidence: 71%

Green Shocks: The Spillover Effects of Green Equity Indices on Global Market Dynamics

Trancoso,

Gomes

2024

Economies

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This study investigates the impact of green equity indices on global market dynamics using a time-varying parameter vector autoregression (TVP-VAR) model. We uncover a significant shift in the role of the global market, transitioning from a shock transmitter to a shock receiver, as the influence of green finance grows. By directly comparing green equity indices with their corresponding global parent indices, we adopt a global perspective that transcends the limitations of studies focusing on specific regions, such as the USA, China, or Europe. This novel approach minimizes the potential biases in the transmission channels within regional markets, enabling a more comprehensive understanding of the relationship between green finance and global market dynamics. Moreover, by focusing on equity indices we ensure a consistent comparison of financial instruments, avoiding the complexities that arise when comparing different asset classes such as green bonds and conventional equities. For global investors, our results highlight the importance of dynamic and flexible hedging strategies that adapt to the distinct characteristics of green assets and their growing influence on the global market. Risk managers should incorporate these time-varying spillover effects into their models to better assess and mitigate potential risks. Policymakers should consider the growing influence of green finance on the broader market when formulating regulations and incentives to support sustainable investing, as our findings underscore the increasing importance of this sector in shaping market dynamics.

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Section: Discussionmentioning

confidence: 71%