Further Evidence on Exchange Rate Uncertainty and Equity Market Volatility: Realized Volatility Dynamics of German DAX Index before and after the Adoption of the Euro 1995-2005
We compare the empirical distribution of daily, weekly and monthly realized volatilities of the DAX index before and after the adoption of the Euro to analyze the relationship between reduced exchange rate uncertainty and the stock market volatility from 3/4/1995-30/6/2005. Our results are inline with the literature that does not find significant evidence that there is a trade-off between exchange rate uncertainty and stock market volatility. We also compare our results to the empirical distribution of daily, weekly and monthly realized volatiles of the DJIA to account for changes that might affect the stock markets globally, for the same period. We again do not find significant changes in terms of the first three moments when we compare the pre- and post- Euro period. However, daily realized volatility series of DAX returns display less kurtosis compared to that of DJIA after the introduction of Euro for the period considered.
Exchange Rate Uncertainty, Stock Market volatility, Realized volatility, DAX, DJIA, ARCH/GARCH.