Dynamic Asymmetric Effect of Currency Risk Pricing of Exchange Rate on Equity Markets: A Regime-Switching Based C-Vine Copulas Method
Round 1
Reviewer 1 Report
The article is well written with a high significance in the field.
There are few points I would suggest:
Line 315: "The majority of these studies..." . PLEASE ADD REFERENCES, WHICH STUDIES.
Line 316: "Some research found...". PLEASE ADD REFERENCES.
Line 317: "..., while others found no evidence...". PLEASE ADD REFERENCES.
Lines 318 and 319: PKEASE ADD SPECIFIC REFERENCES.
Line 320: "They also employed...". WHO ARE "THEY"? PLEASE ADD REFERENCES.
SAME APPLIES TO LINE 321, 361 to 364.
Line 909: "..., allowing them to be confident in the of the...". I DON'T UNDERSTAND THE SENTENCE.
Line 937: PLEASE CORRECT THE NAME "THOMSON ".
This research paper may benefit adding newer findings in this field of research.
Author Response
REVIEWER ONE REPORT
Line 315: "The majority of these studies..." . PLEASE ADD REFERENCES, WHICH STUDIES.
(Choi et al., 1998; De Santis & Gerard, 1998; Saleem & Vaihekoski 2010; Boako & Alagidede, 2017; Tai, 2008; Antell & Vaihekoski, 2007; Eichler & Roevekamp, 2018)
Line 316: "Some research found...". PLEASE ADD REFERENCES.
(Al-Shboul & Anwar 2014; Karolyi & Wu, 2021; Kodongo & Ojah, 2014; Azher & Iqbal, 2016; Chkili, 2012; Choi et al., 1998)
Line 317: "..., while others found no evidence...". PLEASE ADD REFERENCES.
(Jorion, 1991; Hamao, 1988)
Lines 318 and 319: PKEASE ADD SPECIFIC REFERENCES.
(De Santis & Gerard, 1998; Gupta & Finnerty, 1992; Kodongo & Ojah, 2012)
Line 320: "They also employed...". WHO ARE "THEY"? PLEASE ADD REFERENCES
(Saleem & Vaihekoski 2010; Eichler & Roevekamp, 2018; Carrieri & Majerbi, 2006; Azher & Iqbal, 2016; Kodongo & Ojah, 2012; Boako & Alagidede, 2017; Kodongo & Ojah, 2014; Gupta & Finnerty, 1992)
SAME APPLIES TO LINE 321, 361 to 364.
(Dumas & Solnik, 1995 and Choi et al., 1998) and (Hamao, 1988 and Jorion, 1991)
Line 909: "..., allowing them to be confident in the of the...". I DON'T UNDERSTAND THE SENTENCE.
allowing them to be confident in the market’s flexibility through strong and stable institutions and developing innovative measures to ensure investors safety.
Line 937: PLEASE CORRECT THE NAME "THOMSON ".
Thomson
Reviewer 2 Report
The study is well executed.
I would suggest finetuning the interpretation of the results and the policy implication.
- I would suggest removing or editing the part about the real economy in conclusion (e.g. Last sentence). The analysis doesn't control for all transmission channels to the real economy.
- The reader maybe not be familiar with the monetary policy and exchange regime of the countries used for the analysis. Would it be helpful to add a bit more regarding this? It will also provide arguments to explain what happens during the different crisis periods.
For example, Poland operates a floating exchange rate regime, allowing for foreign exchange market interventions by the central bank. But still, Poland is required to adopt the euro (i.e. Band - Target zone). So, the currency exchange remains linked to the euro and ECB monetary policy. The COVID-19 crisis was also described by a very active monetary policy in some countries that kept the stock market at a high level (e.g. ECB/Poland monetary policy).
Thank you for the reading.
Author Response
REVIEWER TWO REPORT
I would suggest fine-tuning the interpretation of the results and the policy implication.
In addition, our findings show the selected sectors of US, India, Brazil, SA and Poland highly affected by the COVID-19, supporting the findings of Akhtaruzzaman, et al, (2021) who proved that the transmission of risk contagion from china to G7 countries was more remarkable during COVID-19. In the same manner, the evidence proposes that the ability regardless of the hedge strategy used by the sector of equity markets for each country, against the COVID-19 risks is impaired. Such findings have significant implications for both domestic and foreign investors in the sectorial equity markets of the United States, Brazil, India, South Africa, and Poland. Previous studies such as (Corbet, et al., 2022; Akhtaruzzman, et al., 2021) backs up these findings.
- I would suggest removing or editing the part about the real economy in conclusion (e.g. Last sentence). The analysis doesn't control for all transmission channels to the real economy.
It is clear that during crisis period (GFC, EDC and the COVID-19 pandemic) the pricing of currency in equity markets depend on the hedging strategy used in the sector of each country selected, providing hedging policy and safety used to ensure the sustainability of the shrinking economy in the lower and higher regimes of volatilities as seen in the sectorial emerging countries' selected in this study.
- The reader maybe not be familiar with the monetary policy and exchange regime of the countries used for the analysis. Would it be helpful to add a bit more regarding this? It will also provide arguments to explain what happens during the different crisis periods.
For example, Poland operates a floating exchange rate regime, allowing for foreign exchange market interventions by the central bank. But still, Poland is required to adopt the euro (i.e. Band - Target zone). So, the currency exchange remains linked to the euro and ECB monetary policy. The COVID-19 crisis was also described by a very active monetary policy in some countries that kept the stock market at a high level (e.g. ECB/Poland monetary policy).
See page 3
Most central banks use short-term interest rates as their primary policy tool. Similarly, the Brazilian inflation targeting regime employs the selic rate as the primary monetary policy instrument. Goncalves (1993) indicate that the shifting from fixed to floating exchange rates has not resulted in improved economic outcomes for developing countries. It is clear that the fear of floating was less acute due to low exchange rate pass-through and the policymakers focusing on monetary policy primarily. Michael, et al. (2010) show that the financial integration has increased significantly since the mid-2000s, putting monetary independence and exchange rate stability at risk. According to According to Kabundi and Mlachila (2019), the South African Reserve Bank has become more credible since the implementation of the inflation target regime due to improved communication, transparency, and independence. The impact of any external shocks on monetary policy is critical not only for South Africa but also for other emerging economies. A supportive policy environment, including prudent macroeconomic policies, a strong financial sector, and credible institutions, is required for any exchange rate regime to maintain a stable and competitive real exchange rate. Monetary policy should be aligned with exchange rate goals. Under any exchange rate regime, a country's failure to establish fiscal discipline would lead to a crisis (Yagci, 2001). For more details on monetary policy see (Ncube, M. & Ndou, E. 2013; Eichengreen, Barry. 2008).
