Abstract
This paper examines the degree of correlation, and possible causation, between the US Dollar (against the Euro and the British Pound) and the US equity market indexes (the S&P 500 and the NASDAQ composite). The information utilized in this study is the 14 year period beginning in January 1999 and ending in December 2012. The purpose of this exercise is to judge the potential effectiveness of hedging against declines in the (major) US stock market indexes utilizing the dollar, or the reverse, focusing particularly on the financial crisis period encompassing the latter part of 2007 through early 2009. A currency hedge that is long on the Euro or Pound seems to provide protection against severe US stock market declines.
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