Risk Transmissions between Major Foreign Currencies: An Empirical Analysis from the U.S. Perspective

This study investigates volatility spillovers and extreme return movements between major foreign currencies and examines how they vary over time with a focus on the 2007 Global Financial Crisis. Our results show that volatility spillovers become more significant during the post-crisis period. Also, considering the effect of the 2016 U.K. referendum known as Brexit on volatility spillovers, we find that volatility spillovers from the British pound (GBP) to other major currencies are weakened after the 2016 referendum whereas those from other major currencies to GBP remain the same regardless of the referendum. On the other hand, we discover that extreme return movements between major currencies are weakened during the post-crisis period and extreme returns on European currencies are more simultaneously tied together than other major currencies in geographically different economies.