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Return and volatility spillovers: evidence from Indian exchange rates

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  • Manish Kumar

Abstract

This study examines the nature of interdependence, and return and volatility spillovers, for three Indian exchange rates: US dollar (USD), Euro and British Pound. We use the spillover index methodology of Diebold and Yilmaz (2009) to analyse precisely and independently the returns and volatility spillovers. We also computed the return and volatility spillover indices over the 100-days rolling sub-sample windows. The empirical evidence suggests that there is a significant contemporaneous relationships among the three exchange rate returns series and the three conditional volatility series. Spillover results suggest that the INR-Euro exchange rate contributes to INR-Pound rates, in terms of both return and volatility spillovers. INR-USD rates are largely unaffected by innovations in other exchange rates. The results of spillover index reveal that a shock in the economy (high foreign institutional flows, foreign direct investment, recession, etc.) is reflected in returns as well as volatility of the index.

Suggested Citation

  • Manish Kumar, 2011. "Return and volatility spillovers: evidence from Indian exchange rates," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 3(4), pages 371-387.
    • Handle: RePEc:ids:ijecbr:v:3:y:2011:i:4:p:371-387
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    References listed on IDEAS

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    1. Krylova, Elizaveta & Nikkinen, Jussi & Vähämaa, Sami, 2009. "Cross-dynamics of volatility term structures implied by foreign exchange options," Journal of Economics and Business, Elsevier, vol. 61(5), pages 355-375, September.
    2. Lucía de las Nieves Morales, 2008. "Volatility Spillovers between Equity and Currency Markets: Evidence from Major Latin American Countries," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(132), pages 185-215.
    3. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
    4. Angelos Kanas, 2000. "Volatility Spillovers Between Stock Returns and Exchange Rate Changes: International Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3‐4), pages 447-467, April.
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    2. Xu Zhang & Xian Yang & Jianping Li & Jun Hao, 2023. "Contemporaneous and noncontemporaneous idiosyncratic risk spillovers in commodity futures markets: A novel network topology approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(6), pages 705-733, June.

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