Stock and foreign exchange market linkages in emerging economies
Journal
Journal of International Financial Markets, Institutions and Money
Date Issued
December 2013
Author(s)
DOI
10.1016/j.intfin.2013.09.003
Abstract
This paper investigates bi-directional linkages between the stock and foreign exchange markets of a number of emerging economies. This is accomplished by estimating a vector autoregressive model with Generalized Autoregressive Conditional Heteroskedasticity (VAR-GARCH) for each of twelve emerging economies. Included in model dynamics are the effects of global and regional stock markets on the stock and foreign exchange markets. We find significant bi-directional spillovers between stock and foreign exchange markets. Moreover, we investigate whether a country's choice of exchange rate regime or the Asian financial crisis had a significant effect on the volatility spillover mechanism.