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

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  • Kočenda, Evžen
  • Moravcová, Michala

Abstract

We analyze time-varying exchange rate co-movements, hedging ratios, and volatility spillovers on the new EU forex markets during 1999M1-2018M5. We document significant differences in the extent of currency comovements during various periods of market distress that are related to real economic and financial events. These imply favorable diversification benefits: the hedge-ratio calculations show all three currencies bring hedging benefits during crisis periods, but at different costs. During calm periods, most of the volatilities are due to each currency’s own history. During the distress periods, volatility spillovers among currencies increase substantially and the Hungarian currency assumes a leading role.

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  • Kočenda, Evžen & Moravcová, Michala, 2019. "Exchange rate comovements, hedging and volatility spillovers on new EU forex markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 42-64.
    • Handle: RePEc:eee:intfin:v:58:y:2019:i:c:p:42-64
    DOI: 10.1016/j.intfin.2018.09.009
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    More about this item

    Keywords

    Exchange rates; New EU forex markets; Volatility; DCC model; Volatility spillover index; Portfolio weights and hedge ratios; EU debt crisis; Global financial crisis;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • P59 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Other

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