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Volatility Spillover in the Foreign Exchange Market: The Indian Experience

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  • Saurabh Ghosh
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    Abstract

    We 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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    File URL: http://www.ifw-kiel.de/ausbildung/asp/asp-wp/2012/TP2%20Ghosh.pdf
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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Kiel Advanced Studies Working Papers with number 460.

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    Length: 26 pages
    Date of creation: Jul 2012
    Date of revision:
    Handle: RePEc:kie:kieasw:460

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    Keywords: Emerging financial market; exchange rate; volatility spillover; multivariate GARCH; threshold GARCH; GJR-TGARCH;

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