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Volatility Spillover Effects Between Stock Prices and Exchange Rates in Emerging Economies: Evidence from Turkey


  • Erick Lusekelo Mwambuli


  • Zhang Xianzhi
  • Zakayo S. Kisava


Volatility spillover effects between stock prices and exchange rates in emerging countries are a critical focus in the financial economics research arena. This paper focused to investigate the volatility spillover effects between stock prices and exchange rates of Istanbul stock exchange (ISE) by employing an exponential generalized autoregressive condition heteroskedasticity (EGARCH) model. The period of study covered 11 years (i.e. 2005 to 2015) inclusive a period of the global financial crises (i.e. from 2005 to 2009) which resulted out from subprime mortgage in United States of America (USA).Our results suggest an existence of short run relationship between stock prices and exchange rates in Istanbul stock exchange (ISE).This empirical evidence suggest that there is symmetric volatility spillover between stock prices and exchange rates of Istanbul stock exchange (ISE) for full sample employed as a result good and bad news has got a balanced effect to the market. The findings of the significant volatility spillover effects between exchange rates and stock prices suggest that, the markets are informationally efficient and one market exchange rate has significant predictive power of equal weight to another in case of two markets. Our study recommends investors and multinational firm managers to consider the general behaviour of the financial market before making decision whether to invest in or not since there is existence of relationship and volatility spillover between stock prices and exchange rates meanwhile economic policy makers both in Turkey and outside Turkey should consider these findings in their policy as one of the determinant to economic growth, as macroeconomic variable should be stable like exchange rates. Furthermore, this study may be extended after including of other variables which were not considered in this study like interest rate, inflation and agency theory.

Suggested Citation

  • Erick Lusekelo Mwambuli & Zhang Xianzhi & Zakayo S. Kisava, 2016. "Volatility Spillover Effects Between Stock Prices and Exchange Rates in Emerging Economies: Evidence from Turkey," Business and Economic Research, Macrothink Institute, vol. 6(2), pages 343-359, December.
  • Handle: RePEc:mth:ber888:v:6:y:2016:i:2:p:343-359

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    References listed on IDEAS

    1. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-355, December.
    2. Phylaktis, Kate & Ravazzolo, Fabiola, 2005. "Stock market linkages in emerging markets: implications for international portfolio diversification," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(2), pages 91-106, April.
    3. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-971, December.
    4. Elena Fedorova & Kashif Saleem, 2010. "Volatility Spillovers between Stock and Currency Markets: Evidence from Emerging Eastern Europe," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(6), pages 519-533, December.
    5. Ruey-Shan Wu, 2005. "International Transmission Effect of Volatility between the Financial Markets during the Asian Financial Crisis," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 12(1), pages 19-35, July.
    6. Matthew Kofi Ocran, 2010. "Exchange Rate Pass-Through To Domestic Prices: The Case of South Africa," Prague Economic Papers, University of Economics, Prague, vol. 2010(4), pages 291-306.
    7. Ajayi, Richard A. & Friedman, Joseph & Mehdian, Seyed M., 1998. "On the relationship between stock returns and exchange rates: Tests of granger causality," Global Finance Journal, Elsevier, vol. 9(2), pages 241-251.
    8. repec:wsi:ijtafx:v:09:y:2006:i:08:n:s0219024906003974 is not listed on IDEAS
    9. Benjamin M. Tabak, 2006. "The Dynamic Relationship Between Stock Prices And Exchange Rates: Evidence For Brazil," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(08), pages 1377-1396.
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    More about this item


    Volatility spillover; Stock prices; Exchange rate; EGARCH; Emerging economies; Istanbul Stock Exchange (ISE);

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General


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