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Volatility Transmission between Stock and Foreign Exchange Markets Patterns in Neighboring Areas

Author

Listed:
  • Mo?se Sidiropoulos

    (Universit? Louis Pasteur and B.E.T.A., Strasbourg, France)

  • Jamel Trabelsi

    (Universit? Louis Pasteur and B.E.T.A., Strasbourg, France)

Abstract

This paper investigates spillover effects across stock and foreign exchange markets in France, Germany, UK and Japan by using daily data ant the GARCH approach. We propose an alternative procedure to investigate volatility transmission between stock and foreign exchange markets using both cointegration and co-persistence analysis. The empirical results suggest for the case of France and Japan a negative cross-effect running from the lagged exchange rate error to the stock prices conditional variance. On the other hand, we show that the exchange rate volatility affects negatively the conditional stock price variance. In addition we detect the presence of co-persistence relation between UK series. This result suggests that the UK financial markets are adjusted through the exchange rate volatility mechanism.

Suggested Citation

  • Mo?se Sidiropoulos & Jamel Trabelsi, 2001. "Volatility Transmission between Stock and Foreign Exchange Markets Patterns in Neighboring Areas," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 5(1), pages 47-60, Summer.
    • Handle: RePEc:ekn:ekonom:v:5:y:2001:i:1:p:47-60
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    More about this item

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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