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Dynamics of Price and Volatility Spillovers Among Stock and Foreign Exchanges: Evidence from South Asian Countries

RUDRA P. PRADHAN|SMRK SAMARAKOON|EAIN EDIRIWEEERA|RANA P MARADANA
경제연구소 (Hanyang Economic Research Institute)|2024.06|Journal of Economic Development|제49권 제2호|pp. 111-138|DOI 10.35866/caujed.2024.49.2.006

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키워드

Volatility Spillover EffectGARCH BEKK ModelSouth Asian Markets
주제분류경제학

초록

Our study focused on exploring the volatility spillover between foreign currency and stock markets, as well as the price dynamics of financial instruments traded in South Asian countries. We use daily data from 2001 to 2021 on the closing exchange rates of local currency to the US dollar and closing stock price indices of these countries. To capture the volatility spillover effect, we utilized the GARCH-BEKK model and used Granger Causality test results to test the price dynamics of these markets. Our findings revealed that the own volatility shocks significantly affect current market behavior and volatility effects spill over bi-directionally between foreign exchange rates and stock price indices in these countries. This study provides valuable insights for both domestic and international investors to understand the South Asian stock and foreign exchange markets, enabling them to make more efficient investment decisions based on the best market conditions.

Abstract

Our study focused on exploring the volatility spillover between foreign currency and stock markets, as well as the price dynamics of financial instruments traded in South Asian countries. We use daily data from 2001 to 2021 on the closing exchange rates of local currency to the US dollar and closing stock price indices of these countries. To capture the volatility spillover effect, we utilized the GARCH-BEKK model and used Granger Causality test results to test the price dynamics of these markets. Our findings revealed that the own volatility shocks significantly affect current market behavior and volatility effects spill over bi-directionally between foreign exchange rates and stock price indices in these countries. This study provides valuable insights for both domestic and international investors to understand the South Asian stock and foreign exchange markets, enabling them to make more efficient investment decisions based on the best market conditions.

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