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Correlations, Return and Volatility Spillovers in Indian Exchange Rates

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  • Dilip Kumar

    (Dilip Kumar, Research Scholar, Institute for Financial Management and Research, Chennai India. E-mails: dksic212@gmail.com; dilip.kumar@ifmr.ac.in.)

Abstract

This study explores the dynamic nature of return, volatility and correlation transmission mechanism among Indian exchange rates relative to US dollar (USD), Great Britain pound (GBP), euro and Japanese yen. We make use of the dynamic conditional correlation (DCC) vector autoregressive multivariate generalized autoregressive conditional heteroskedasticity (VAR (1)-MVGARCH) model which is capable of capturing the interactive dynamics in the first moment and the second moment of the time series. Our empirical results point to a significant unidirectional return spillover from euro and Japanese yen to USD and bidirectional return spillover between GBP and Japanese yen. We also find evidence of significant volatility spillover effect from USD to GBP, euro and Japanese Yen and from GBP and Euro to USD. Moreover, we find that the time-varying conditional correlations between exchange rate changes dynamically over time and are widely distributed with higher volatility during the period of global financial crisis for all USD and other exchange rate pairs.

Suggested Citation

  • Dilip Kumar, 2014. "Correlations, Return and Volatility Spillovers in Indian Exchange Rates," Global Business Review, International Management Institute, vol. 15(1), pages 77-91, March.
    • Handle: RePEc:sae:globus:v:15:y:2014:i:1:p:77-91
    DOI: 10.1177/0972150913515577
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    References listed on IDEAS

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    Cited by:

    1. Smile Dube, 2019. "GARCH Modelling of Conditional Correlations and Volatility of Exchange rates in BRICS Countries," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(1), pages 1-7.
    2. Dilip Kumar, 2017. "A Study of Risk Spillover in the Crude Oil and the Natural Gas Markets," Global Business Review, International Management Institute, vol. 18(6), pages 1465-1477, December.
    3. Nurul Anisak & Azhar Mohamad, 2020. "Foreign Exchange Exposure of Indonesian Listed Firms," Global Business Review, International Management Institute, vol. 21(4), pages 918-936, August.
    4. Pami Dua & Ritu Suri, 2019. "Interlinkages Between USD–INR, EUR–INR, GBP–INR and JPY–INR Exchange Rate Markets and the Impact of RBI Intervention," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(1_suppl), pages 102-136, April.
    5. Amare Wubishet Ayele & Emmanuel Gabreyohannes & Yohannes Yebabe Tesfay, 2017. "Macroeconomic Determinants of Volatility for the Gold Price in Ethiopia: The Application of GARCH and EWMA Volatility Models," Global Business Review, International Management Institute, vol. 18(2), pages 308-326, April.
    6. Gnyana Ranjan Bal & Amit Manglani & Malabika Deo, 2018. "Asymmetric Volatility Spillover between Stock Market and Foreign Exchange Market: Instances from Indian Market from Pre-, during and Post- Subprime Crisis Periods," Global Business Review, International Management Institute, vol. 19(6), pages 1567-1579, December.
    7. Shaista Alam & Qazi Masood Ahmed & Muhammad Shahbaz, 2017. "Exchange Rate Volatility and Pakistan’s Exports to Major Markets: A Sectoral Analysis," Global Business Review, International Management Institute, vol. 18(6), pages 1507-1519, December.

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