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Volatility spillovers and determinants of contagion: Exchange rate and equity markets during crises

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  • Leung, Henry
  • Schiereck, Dirk
  • Schroeder, Florian

Abstract

We study the hourly volatility spillover between the equity markets of New York (DJI), London (FTSE 100) and Tokyo (N225) and their exchange rates (USD, EUR, GBP and JPY) for the period of 2001 through 2013 covering the non-crises period, the global financial crisis and the euro debt crisis. First, we find a general increase in spillover between the equity and exchange rate markets during the crisis periods. Second, pure contagion (attributable to irrational investors’ behavior) and fundamental contagion (measured by macroeconomic fundamentals) explains the increased spillover between the FTSE 100, N225 to the DJI during the global financial crisis and from the exchange rate markets to the DJI during the euro debt crisis.

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  • Leung, Henry & Schiereck, Dirk & Schroeder, Florian, 2017. "Volatility spillovers and determinants of contagion: Exchange rate and equity markets during crises," Economic Modelling, Elsevier, vol. 61(C), pages 169-180.
    • Handle: RePEc:eee:ecmode:v:61:y:2017:i:c:p:169-180
    DOI: 10.1016/j.econmod.2016.12.011
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    More about this item

    Keywords

    G12; G14; Volatility spillover; Contagion; Exchange rate market; Equity market; Financial crisis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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