Volatility spillovers between foreing-exchange and stock markets



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Morales-Zumaquero, Amalia and Sosvilla-Rivero, Simón (2017) Volatility spillovers between foreing-exchange and stock markets. [ Working Papers; nº 02, 2017, ISSN: 2530-0849 ]

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This paper empirically analyses the evidence of intra-spillovers and inter-spillovers between foreign exchange and stock markets in the seven economies which concentrate the majority of foreign exchange transactions (i.e. United Kingdom, Euro area, Australia, Swiss, Canada, United Kingdom and Japan), using daily data, during the period 1990 to 2015 and during the pre-global and post-global financial crisis periods. To that end, we employ two econometric methodologies: the C-GARCH methodology by Engle and Lee (1999) and the SVAR framework (Sohel Azad et al., 2015). Results suggest that: (i) permanent and transitory components of the conditional variance exhibit several well-known peaks in volatilities; (ii) the long-run volatility relationships are stronger than the short-run linkages volatility with a reinforcement during the post-global financial crisis period; (iii) the presence of intra-spillovers and inter-spillovers increases substantially during the post-global financial crisis period and (iv) in all samples, the stock markets play a dominant role in the transmission of long-run and short-run volatility, except for in the period after the Global Financial Crisis, where the foreign-exchange markets are the main long-run volatility triggers.

Item Type:Working Paper or Technical Report
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This work was supported by the Banco de España through [grant from Programa de Ayudas a la Investigación 2016–2017 en Macroeconomía, Economía Monetaria, Financiera y Bancaria e Historia Económica]; the Spanish Ministry of Education, Culture and Sport [grant PRX16/00261];
and the Spanish Ministry of Economy and Competitiveness [grant ECO2016-76203-C2-2-P].

Uncontrolled Keywords:Stock markets; Exchange rates; Market spillovers; Component-GARCH model; Longterm volatility; Short-term volatility
Subjects:Social sciences > Economics > Stock exchanges
JEL:C32, F31, G15
Series Name:Working Papers
ID Code:41371
Deposited On:16 Feb 2017 09:25
Last Modified:17 Feb 2017 11:47

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