Preprint Article Version 1 Preserved in Portico This version is not peer-reviewed

Volatility Spillover between Developed and Developing Countries: The Global Foreign Exchange Market’s Channel

Version 1 : Received: 20 May 2021 / Approved: 24 May 2021 / Online: 24 May 2021 (12:42:54 CEST)
Version 2 : Received: 7 June 2021 / Approved: 8 June 2021 / Online: 8 June 2021 (13:03:39 CEST)

A peer-reviewed article of this Preprint also exists.

Mohammed, W.A. Volatility Spillovers among Developed and Developing Countries: The Global Foreign Exchange Markets. J. Risk Financial Manag. 2021, 14, 270. Mohammed, W.A. Volatility Spillovers among Developed and Developing Countries: The Global Foreign Exchange Markets. J. Risk Financial Manag. 2021, 14, 270.

Journal reference: J. Risk Financial Manag. 2021, 14, 270
DOI: 10.3390/jrfm14060270

Abstract

In this paper, we investigate the “statics and dynamics” return and volatility spillovers transmission across developed and developing countries. Quoted against the U.S. dollar, we study twenty-three global currencies over 2005 – 2016. Focusing on the spillover index methodology, the generalised VAR framework is employed. Our findings indicate no evidence of bi-directional return and volatility spillovers between developed and developing countries. However, a unidirectional volatility spillover from developed to developing countries is highlighted. Furthermore, our findings document significant bi-directional volatility spillovers within the European region (Eurozone and non-Eurozone currencies) with the British Pound (GBP) and the Euro (EUR) as the most significant transmitters of volatility. The findings reiterate the prominence of volatility spillovers to financial regulators.

Subject Areas

Foreign Exchange Market, Volatility Spillover, Return Spillover, VAR Framework, Variance Decomposition, Financial Crisis, Financial Interdependence

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