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Long run trends and volatility spillovers in daily exchange rates

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  • Angela Black
  • David McMillan

Abstract

Recent evidence has suggested that a model capable of capturing multiple volatility dynamics best describes daily exchange rate volatility. Estimation of a model that can capture long-run and short-run volatility movement also allows issues relating to financial and economic integration between countries to be examined. More specifically, the long-run component for comovement can be examined and spillover effects tested for in mean and volatility, the latter of which is suggestive of policy co-ordination. Using a series of dollar exchange rates supportive evidence is reported of a long-run/short-run decomposition for volatility, and existence of three long-run volatility trends, one for the European series and a trend each for the non-European series. Further, significant volatility spillovers are reported, notably amongst the European series. These results are thus supportive of increased convergence between these economies.

Suggested Citation

  • Angela Black & David McMillan, 2004. "Long run trends and volatility spillovers in daily exchange rates," Applied Financial Economics, Taylor & Francis Journals, vol. 14(12), pages 895-907.
  • Handle: RePEc:taf:apfiec:v:14:y:2004:i:12:p:895-907
    DOI: 10.1080/0960310042000203037
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    References listed on IDEAS

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    Cited by:

    1. Wölfle, Marco, 2007. "Price Discovery for Cross-Listed Securities from Emerging Eastern European Countries," ZEW Discussion Papers 07-067, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Orlov, Alexei G., 2009. "A cospectral analysis of exchange rate comovements during Asian financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 742-758, December.
    3. Li, Dandan & Ghoshray, Atanu & Morley, Bruce, 2012. "Measuring the risk premium in uncovered interest parity using the component GARCH-M model," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 167-176.
    4. Haakon Kavli & Kevin Kotzé, 2014. "Spillovers in Exchange Rates and the Effects of Global Shocks on Emerging Market Currencies," South African Journal of Economics, Economic Society of South Africa, vol. 82(2), pages 209-238, June.
    5. Grossmann, Axel & Love, Inessa & Orlov, Alexei G., 2014. "The dynamics of exchange rate volatility: A panel VAR approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 1-27.
    6. Marcus Pramor & Natalia T. Tamirisa, 2006. "Common Volatility Trends in the Central and Eastern European Currencies and the Euro," IMF Working Papers 06/206, International Monetary Fund.
    7. Dejan Živkov & Jovan Njegić & Mirela Momčilović & Ivan Milenković, 2016. "Exchange Rate Volatility and Uncovered Interest Rate Parity in the European Emerging Economies," Prague Economic Papers, University of Economics, Prague, vol. 2016(3), pages 253-270.
    8. Antonakakis, Nikolaos, 2012. "Exchange return co-movements and volatility spillovers before and after the introduction of euro," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(5), pages 1091-1109.
    9. David G. McMillan & Isabel Ruiz, 2009. "Volatility dynamics in three euro exchange rates: correlations, spillovers and commonality," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 1(1), pages 64-74.
    10. repec:eid:wpaper:02/11 is not listed on IDEAS
    11. Morar Triandafil, Cristina & Brezeanu, Petre & Huidumac, Catalin & Morar Triandafil, Adrian, 2011. "The Drivers of the CEE Exchange Rate Volatility - Empirical Perspective in the context of the Recent Financial Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 212-229, March.
    12. 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.
    13. Ciner, Cetin, 2011. "Information transmission across currency futures markets: Evidence from frequency domain tests," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 134-139, June.
    14. Ozer-Imer, Itir & Ozkan, Ibrahim, 2014. "An empirical analysis of currency volatilities during the recent global financial crisis," Economic Modelling, Elsevier, vol. 43(C), pages 394-406.
    15. Li, Dandan & Ghoshray, A. & Morley, B., 2011. "Uncovered Interest Parity and the Risk Premium," Department of Economics Working Papers 24072, University of Bath, Department of Economics.
    16. repec:got:cegedp:89 is not listed on IDEAS
    17. David McMillan & Isabel Ruiz & Alan Speight, 2010. "Correlations and spillovers among three euro rates: evidence using realised variance," The European Journal of Finance, Taylor & Francis Journals, vol. 16(8), pages 753-767.
    18. Kühl, Michael, 2009. "Excess comovements between the Euro/US dollar and British pound/US dollar exchange rates," Center for European, Governance and Economic Development Research Discussion Papers 89, University of Goettingen, Department of Economics.
    19. Grossmann, Axel & Orlov, Alexei G., 2012. "Exchange rate misalignments in frequency domain," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 185-199.

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