Volatility transmission in emerging European foreign exchange markets

Abstract

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. This paper studies the dynamics of volatility transmission between Central European currencies and euro/dollar foreign exchange using model-free estimates of daily exchange rate volatility based on intraday data. We formulate a flexible yet parsimonious parametric model in which the daily realized volatility of a given exchange rate depends both on its own lags as well as on the lagged realized volatilities of the other exchange rates. We find evidence of statistically significant intra-regional volatility spillovers among the Central European foreign exchange markets. With the exception of the Czech currency, we find no significant spillovers running from euro/dollar to the Central European foreign exchange markets. To measure the overall magnitude and evolution of volatility transmission over time, we construct a dynamic version of the Diebold-Yilmaz volatility spillover index, and show that volatility spillovers tend to increase in periods characterized by market uncertainty. Terms of use: Documents inJEL-Code: C50, F31, G15.

How strong is the linkage between tourism and economic growth in Europe?

“…The choice of a VAR model is justified by the fact that such models help to alleviate the endogeneity problem observed in the tourism-economic growth relationship by treating all variables as potentially endogenous and explicitly modelling the feedback effects across them. The VAR-based spillover index has already attracted a considerable attention in the economic literature (see, inter alia, McMillan and Speight, 2010;Yilmaz, 2010;Bubák et al, 2011;Antonakakis, 2012;Zhou et al, 2012;Antonakakis and Badinger, 2014) and this is its first application to the tourism context.…”

Intra-Daily Volatility Spillovers between the US and German Stock Markets

“…Finally, the realized variances and covariances of the three intra-day periods are normalized by the length of the respective intra-day period. t, 3 . The corresponding estimates for the long-run components of the three intra-day periods are obtained as…”

“…Here the spillover parameters are given by the first elements of the two-dimensional vectors 3 and the coefficients c i,3 driving the direct transmission effects.…”

“…The marginal effects given by the entries of ∆ 0 , A i , and B i in Equation (13) 3 , by tracing them period by period through the system.…”

“…The former study uses four intra-day returns per day of the yen-US dollar exchange rate associated with four distinct geographic market segments with non-synchronous trading hours (Tokyo, Europe, New York, Pacific), and reports significant spillovers between the different market segments, indicating that volatility in international markets behaves like a meteor shower. Hamao, et al (1990) In order to analyze the short-term interdependence of the realized variances for the exchange rates of four European currencies against the US dollar, Bubák, et al (2011) propose a multivariate version of the heterogeneous autoregressive (HAR) model of Corsi (2009). Melvin and Melvin (2003) investigate volatility spillovers of the Deutsche mark-US dollar and yen-US dollar exchange rate across geographical market segments, while Dimpfl and Jung (2012) examine spillovers across the stock markets in Europe, the US and Japan.…”