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Asymmetric volatility spillover between European equity and foreign exchange markets: Evidence from the frequency domain

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  • Warshaw, Evan

Abstract

This study analyzes volatility spillovers between European equity and foreign exchange markets over 2003–2019 by exploring causal linkages in realized volatility across the frequency domain. Daily volatility spillovers are bidirectional and asymmetric across the frequency domain in most cases. Spillovers from equity to foreign exchange markets are significant at high, mid-range, and low frequencies, whereas typically at lower frequencies in the opposite direction. Sub-sample estimations identify similar patterns of asymmetric frequency significance; however, volatility spillovers are primarily unidirectional prior to the Global Financial Crisis. Focusing on slower moving volatility, weekly analysis suggests weaker equity market driven spillovers.

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  • Warshaw, Evan, 2020. "Asymmetric volatility spillover between European equity and foreign exchange markets: Evidence from the frequency domain," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 1-14.
    • Handle: RePEc:eee:reveco:v:68:y:2020:i:c:p:1-14
    DOI: 10.1016/j.iref.2020.03.001
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    More about this item

    Keywords

    Volatility spillover; Frequency domain causality; Realized volatility; Equity prices; Exchange rates;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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