Contagion in futures FOREX markets for the post-Global Financial Crisis: A multivariate FIGARCH-cDCC approach

Abstract

This paper seeks to investigate the time-varying conditional correlations to the futures FOREX market returns. We employ a dynamic conditional correlation (DCC) Generalized ARCH (GARCH) model to find potential contagion effects among the markets. The under investigation period is
2014-2019. We focus on four major futures FOREX markets namely JPY/USD, KRW/USD, EUR/USD and INR/USD. The empirical results show an increase in conditional correlation or contagion for all the pairs of future FOREX markets. Based on the dynamic conditional correlations,
KRW/USD seems to be the safest futures FOREX market. The results are of interest to policymakers who provide regulations for the futures FOREX markets.

Keywords: Financial contagion, Global Financial Crisis, cDCC-FIGARCH model, future FOREX market

JEL Classification: C58, C61, G11, G15