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Volatility spillovers between foreign exchange and stock markets in industrialized countries

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Morales-Zumaquero, Amalia and Sosvilla-Rivero, Simón (2018) Volatility spillovers between foreign exchange and stock markets in industrialized countries. Quarterly Review of Economics and Finance, 70 . pp. 121-136. ISSN 1062-9769

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Official URL: https://doi.org/10.1016/j.qref.2018.04.013



Abstract

This paper empirically analyses the evidence of intra-spillovers and inter-spillovers between foreign exchange and stock markets in the seven economies which constitute the majority of foreign exchange transactions (i.e. the United Kingdom, the United States, the Euro area, Australia, Switzerland, Canada, and Japan). Daily data during the period 1 January 1990 to 31 December 2015 and during the pre-global and post-global financial crisis periods is used. To that end, we employ two econometric methodologies: the C-GARCH methodology and the SVAR framework. Results suggest that: (I) permanent and transitory components of the conditional variance exhibit peaks in volatility during episodes of growing economic and financial instability;(II)the long-run volatility relationships are stronger than the short-run volatility linkages with a reinforcement during the post-global financial crisis period; (III) the presence of intraspillovers and inter-spillovers increases substantially during the post-global financial crisis period and (IV) the stock markets play a dominant role in the transmission of long-run and short-run volatility in all samples, except for the period after the global financial crisis, where the foreign exchange markets are the main long-run volatility triggers.


Item Type:Article
Uncontrolled Keywords:Stock markets; Exchange rates; Market spillovers; Component-GARCH model; Long-run volatility; Short-run volatility
Subjects:Social sciences > Economics > Econometrics
Social sciences > Economics > World economy
Social sciences > Economics > Stock exchanges
JEL:C32, F31, G15
ID Code:60078
Deposited On:21 Apr 2020 10:56
Last Modified:24 Apr 2020 10:09

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