In this seminar Kate McKinnon will present her thesis proposal review on “Investigating linkages between asset markets: A latent factor approach”.

There is an abundance of theoretical and empirical literature concerned with the relationship between stock and currency returns. A more recent approach is premised on the purported portfolio rebalancing activities of international investors; the Uncovered Equity Parity condition (UEP) states that an increase in the equity return of the foreign market over the domestic market will induce investors to sell a portion of foreign equity holdings in order to maintain a target exchange rate exposure, resulting in a depreciation of the foreign currency. Evidence concerning the correlation between equity and currency returns of OECD countries is generally supportive of the condition, except in the case of the large primary commodity exporters of Australia, New Zealand and Canada.

This research seeks to examine the proposition that the interconnections between the asset markets of these countries are distinct among countries with otherwise similar characteristics. In connection with this, the role that global commodity prices play in the joint determination of currency and equity prices is also considered.

Kate McKinnon is a PhD student in Economics at CAMA in Crawford School of Public Policy. Her thesis is in the area of international macro finance and economics and asset pricing. Prior to ANU she worked in banking and finance across the private and public sectors.