Volatility spillovers between foreign exchange and stock markets in industrialized countries

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 intra-spillovers 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.

Volatility Similarity and Spillover Effects in G20 Stock Market Comovements: An ICA-Based ARMA-APARCH-M Approach

“…To further confirm the existence of this effect, more accurate quantification is necessary in the following subsection. In line with our finding, Morales-Zumaquero and Sosvilla-Rivero [70] show that the US stock market is closely related to the other six stock markets, i.e., those of the UK, EU, Australia, Switzerland, Canada, and Japan.…”

Volatility spillovers between real exchange rate returns and real stock price returns in Malaysia

“…Permanent component is dominated by the current expectation of permanent trend given (α + β) is less than one. Permanent or long-run component is mainly due to fundamental factors, whereas transitory or short-run component is mainly due to changes in financial markets as a result of the arrival of new information, speculation, and hedging positions (Chen & Shen, 2004;Morales-Zumaqueroa & Sosvilla-Rivero, 2018).…”

“…The significance of the coefficient of β 21 in model (10) describes long-run volatility or shortrun volatility spillovers from real stock price return to real exchange rate return. The SUR framework is used to estimate models 9 and 10 simultaneously (Bollerslev, 1990;Morales-Zumaqueroa & Sosvilla-Rivero, 2018). The SUR framework assumes that the errors are homoskedastic and linearly independent within each equation.…”

Dynamic Spillover Effects between the US Stock Volatility and China’s Stock Market Crash Risk: A TVP-VAR Approach

“…Sui and Sun [21] found stock return had a spillover effect between US and BRIC countries, and the short-term foreign exchange rate had significant spillover effects on stock return. Morales-Zumaquero and Sosvilla-Rivero [22] used the C-GARCH and SVAR methods to study the volatility spillover effects between the stock market and the foreign exchange market. ey found that the stock market played a leading role in volatility transmission, and the foreign exchange market was the main reason for the long-term volatility of the stock market.…”