Risk and Return Spillovers Among the G10 Currencies

Greenwood‐Nimmo, Matthew; Nguyen, Viet Hoang; Rafferty, Barry

doi:10.2139/ssrn.2730957

Cited by 24 publications

(41 citation statements)

References 42 publications

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“…There is established evidence that developed and emerging forex markets are interdependent and integrated (Kitamura, 2010;Diebold and Yilmaz, 2015;Greenwood-Nimmo et al, 2016). Despite of the above evidence, the new EU forex markets remain outside the research mainstream, even though the currencies of the Czech Republic, Hungary, and Poland score highly in terms of their attractiveness to risk-capital investors (Groh and von Liechtenstein, 2009).…”

Section: Introduction Motivation and Related Literaturementioning

confidence: 99%

Exchange rate comovements, hedging and volatility spillovers on new EU forex markets

Kočenda

Moravcová

2019

Journal of International Financial Markets, Institutions and Mo

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We analyze time-varying exchange rate co-movements and volatility spillovers between the Czech koruna, the Polish zloty, the Hungarian forint and the dollar/euro from 1999 to 2016. We apply the dynamic conditional correlations (DCC) model and the Diebold Yilmaz spillover index to examine the periods prior to and during the GFC, plus during and after the EU debt crisis. We found declining conditional correlations between new EU exchange rates prior to both crises. During the GFC and the European debt crisis, the correlations reach the lowest level, and increase afterwards. Based on the DCC model results we calculate portfolio weights and hedge ratios. We show that during both crises portfolio diversification benefits increase but hedging costs rise as well. Based on the spillover index we document that during calm periods most of the volatilities are due to each currency's own history. However, during the distress periods volatility spillovers among currencies increase substantially. Terms of use: Documents in

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Section: Introduction Motivation and Related Literaturementioning

confidence: 99%

Exchange rate comovements, hedging and volatility spillovers on new EU forex markets

Kočenda

Moravcová

2019

Journal of International Financial Markets, Institutions and Mo

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“…ADCC as a measure of interactions only gives correlations but not spillovers or dominance, however, to study the "to and from" linkages in details, block aggregation technique is used in this study as given under Diebold-Yilmaz framework that was enhanced by Greenwood-Nimmo et al [3].…”

Section: Literature Reviewmentioning

confidence: 99%

“…Sample series of returns and conditional volatilities derived from EGARCH (1, 1) process along with US returns and conditional volatility are provided as input into the software. However, methodology as developed by Diebold and Yilmaz [2] and Greenwood-Nimmo, Nguyen, & Rafferty [3] used for this study is briefly discussed below.…”

Section: Diebold and Yilmaz (2012) Spillover Indexmentioning

confidence: 99%

Dynamic Linkages between Brics and Other Emerging Equity Markets

Sehgal¹,

Mittal²,

Mittal³

2019

TEL

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In this paper, we analyze dynamic interactions between stock markets of BRICS (Brazil, Russia, India, China and South Africa) and other select emerging economies as classified by IMF [1] from January 2001 to June 2017. We employ ADCC-EGARCH model as well as block aggregation technique as suggested by Diebold-Yilmaz [2] framework and order-invariance of GVDs (Generalized Variance Decompositions) as developed by Greenwood-Nimmo, Nguyen, & Rafferty [3] to examine return and risk spillovers within as well as across the BRICS and other sample Emerging Market Economies (EMEs). The results suggest the cohesiveness within BRICS equity markets is moderate. Our results also show increased integration amongst BRICS economies during the global financial crisis period, implying the presence of Contagion effect. Furthermore, Mexico, Chile, Hungary, Turkey and Poland seem to be good candidates to be included along with BRICS for forming a larger Emerging market economic block. This expanded block will not only ensure strengthening trade and financial ties among the participating countries, but also provide a better balance between the emerging and the developed world. This paper contributes immensely to the literature on international finance dealing with financial integration, particularly for emerging markets. The study provides important implications for global policy makers, international economic agencies, investors and the academic community.

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“…Due to the above differences and to the unique features of the forex market, volatility spillovers among currencies might propagate and affect currencies' portfolios in less-than-intuitive ways. As Kanas (2001) argues, positive and significant volatility spillovers may increase the nonsystematic risk that diminishes gains from international portfolio diversification -this is even more important in light of the evidence that systematic volatility plays a dominant role in volatility spillovers among the world currencies (Greenwood-Nimmo et al, 2016). In addition, Amonlirdviman and Carvalho (2010) explicitly show that the asymmetry in the correlations of returns decreases the gains from international portfolio diversification.…”

Section: Introductionmentioning

confidence: 97%

“…For the earlier period,Greenwood-Nimmo et al (2016) document a negative correlation between the Federal funds rate and forex spillovers. The evidence is suggestive of the potential that the U.S. dollar drives much of the forex market dynamics(Lustig et al, 2011).…”

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confidence: 93%

Asymmetric Volatility Connectedness on Forex Markets

2016

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We show how bad and good volatility propagate through forex markets, i.e., we provide evidence for asymmetric volatility connectedness on forex markets. Using high-frequency, intra-day data of the most actively traded currencies over 2007 -2015 we document the dominating asymmetries in spillovers that are due to bad rather than good volatility. We also show that negative spillovers are chiefly tied to the dragging sovereign debt crisis in Europe while positive spillovers are correlated with the subprime crisis, different monetary policies among key world central banks, and developments on commodities markets. It seems that a combination of monetary and real-economy events is behind the net positive asymmetries in volatility spillovers, while fiscal factors are linked with net negative spillovers.

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Risk and Return Spillovers Among the G10 Currencies

Cited by 24 publications

References 42 publications

Exchange rate comovements, hedging and volatility spillovers on new EU forex markets

Exchange rate comovements, hedging and volatility spillovers on new EU forex markets

Dynamic Linkages between Brics and Other Emerging Equity Markets

Asymmetric Volatility Connectedness on Forex Markets

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