Volatility Spillover in the Foreign Exchange Market: The Indian Experience
AbstractWe find evidences of significant volatility co-movements and/ or spillover from different financial markets to forex market for Indian economy. Among a large number of variables examined, volatility spillovers from stock market, government securities market, overnight index swap, Ted spread and international crude oil prices to the foreign exchange market are found to be most important. Empirical findings also indicate that the volatility spillover differed across variables in terms of their influence through shocks and in terms of lagged volatility (persistence) coefficients. There are evidences of asymmetric reactions in the forex market volatility. Comparisons between pre-crisis and post-crisis periods indicate that the reform measures and changes in financial markets microstructure during the crisis period had significant impact on volatility spillover. During the post-crisis period, it is the past volatility (persistent or fundamental) changes, rather than the temporary shocks, that had significant spillover effect on forex volatility. There are evidences of decline in asymmetric response in the forex market during the post-crisis period for the Indian economy
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Advanced Studies Working Papers with number 460.
Length: 26 pages
Date of creation: Jul 2012
Date of revision:
Emerging financial market; exchange rate; volatility spillover; multivariate GARCH; threshold GARCH; GJR-TGARCH;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-16 (All new papers)
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