Volatility Spillover between the Stock Market and the Foreign Market in Pakistan
AbstractOur paper examines the volatility spillover between the stock market and the foreign exchange market in Pakistan. For the longrun relationship we use the Engle Granger two-step procedure and the volatility spillover is modelled through the bivariate EGARCH method. The estimated results from cointegration analysis show that there is no long-run relationship between the two markets. The results from the volatility modelling show that the behaviours of both the stock exchange and the foreign exchange markets are interlinked. The returns of one market are affected by the volatility of the other market. Particularly, the returns of the stock market are sensitive to the returns as well as the volatility of the foreign exchange market. On the other hand, returns in the foreign exchange market are mean-reverting, and they are affected by the volatility of stock market returns. There is a strong relationship between the volatility of the foreign exchange market and the volatility of returns in the stock market.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22216.
Date of creation: Jan 2006
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Stock Market; Forex Market; EGARCH; Volatility Spillover; Stock Market Returns; Foreign Exchange Return; Pakistan;
Other versions of this item:
- Abdul Qayyum & A. R. Kemal, 2006. "Volatility Spillover between the Stock Market and the Foreign Market in Pakistan," PIDE-Working Papers 2006:7, Pakistan Institute of Development Economics.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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