Volatility Spillovers between the Equity Market and Foreign Exchange Market in South Africa
AbstractThis paper attempts to assess the extent of volatility spillovers between the equity market and the foreign exchange market in South Africa. The multi-step family of GARCH models are used for this end, whereby volatility shocks obtained from the mean equation estimation in each market are included in the conditional volatility of the other market, respectively. The appropriate volatility models for each market are selected, following criteria such as covariance stationarity, persistence in variance and leverage effects. The finding indicates that there is a unidirectional relationship in terms of volatility spillovers, from the equity market to the foreign exchange market. The paper supports the view that the extent of foreign participation in the South African equity market contributes to this pattern of volatility spillover.
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Bibliographic InfoPaper provided by Economic Research Southern Africa in its series Working Papers with number 252.
Length: 14 pages
Date of creation: 2011
Date of revision:
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More information through EDIRC
equity market; foreign exchange market; spillover; GARCH models;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
This paper has been announced in the following NEP Reports:
- NEP-AFR-2011-11-14 (Africa)
- NEP-ALL-2011-11-14 (All new papers)
- NEP-FMK-2011-11-14 (Financial Markets)
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