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Bidirectional Volatility Spillover Effect between the Exchange Rate and Stocks in the Presence of Structural Breaks in Selected Eastern European Economies

Author

Listed:
  • Dejan Zivkov

    (Business School of Novi Sad, Serbia
    University of Novi Sad, Serbia)

  • Jovan Njegic

    (Business School of Novi Sad, Serbia
    University of Novi Sad, Serbia)

  • Ivan Milenkovic

    (Faculty of Economics Subotica, Serbia
    University of Novi Sad, Serbia)

Abstract

This paper investigates the second moment spillover effect between stock returns and exchange rate changes in both directions in four Eastern European emerging markets, assuming the presence of multiple structural breaks. The data sample consists of daily observations and the methodology is based on a two-step symmetric/asymmetric fractionally integrated generalized autoregressive conditional heteroskedasticity approach, with a rolling technique and structural breaks integration. The results indicate that the spillover effect has a much greater impact when spillover is from the exchange rate market toward the stock market than in the opposite case and it is time-varying. The inclusion of structural breaks in the model implies that the volatility spillover effect might be biased in stock markets. The applied models suggest that volatility persistence is overestimated in all asset markets if sudden changes are not recognized in the models.

Suggested Citation

  • Dejan Zivkov & Jovan Njegic & Ivan Milenkovic, 2015. "Bidirectional Volatility Spillover Effect between the Exchange Rate and Stocks in the Presence of Structural Breaks in Selected Eastern European Economies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 65(6), pages 477-498, December.
  • Handle: RePEc:fau:fauart:v:65:y:2015:i:6:p:477-498
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    Citations

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    Cited by:

    1. Balaban, Suzana & Živkov, Dejan & Milenković, Ivan, 2019. "Impact of an unexplained component of real exchange rate volatility on FDI: Evidence from transition countries," Economic Systems, Elsevier, vol. 43(3).
    2. Alexey Yurievich Mikhaylov, 2018. "Volatility Spillover Effect between Stock and Exchange Rate in Oil Exporting Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 8(3), pages 321-326.

    More about this item

    Keywords

    exchange rate; stocks; FIGARCH models; modified ICSS algorithm; Eastern European countries;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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