Volatility Spillovers between Stock and Currency Markets: Evidence from Emerging Eastern Europe
25 Pages Posted: 25 Aug 2009
Date Written: August 24, 2009
The purpose of this study is in three folds. First we look at the linkage between Eastern European emerging equity markets and Russia, second we investigate the relationship among the currency markets of Poland, Hungry, Russia and Czech Republic. Finally, we examine the interdependence between Emerging Eastern European and Russian equity and currency markets. We estimate a bivariate GARCH-BEKK model proposed by Engle and Kroner (1995) using weekly returns. We find the evidence of direct linkage between the equity markets, both in regards of returns and volatility, as well as in currency markets. While analyzing the relationship between currency and stock markets we found unidirectional volatility spillovers from currency to stock markets. Results show clear evidence of Eastern European markets integration within the region and with Russia as well.
Keywords: GARCH-BEKK, volatility spillovers, stock market, currency market, Emerging Eastern Europe, Russia
JEL Classification: C32, G15
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