I am constructing an investor sentiment index to determine the impact of investor sentiment on stock market crises. I am following the methodology in this paper, http://22.214.171.124/repec/upload/201312051625034821.pdf.
One of the components in the index is the exchange rate. The movement of exchange rate is closely related to international capital flows. A continuous appreciation of the domestic currency attracts more demand for domestic assets from international investors, leading to a higher investor sentiment index.
I am constructing the Index for 6 different countries; U.S., UK, China, Canada, Japan and Australia.
My question is: If I follow the method used in the paper and use the end of month national currency per USD (e.g. sterling per USD, Yen per USD etc..), what exchange rate should I use for the U.S?
Or should I use a common exchange rate for all 6 countries e.g. national currency per Euro?
Any help would be greatly appreciated.