Working Paper Article Version 2 This version is not peer-reviewed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.


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.


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


Business, Economics and Management, Accounting and Taxation

Comments (1)

Comment 1
Received: 8 June 2021
Commenter: Walid Mohammed
Commenter's Conflict of Interests: Author
Comment: The paper has been peer-reviewed and updated accordingly. The main changes included as follow:
Point 1: The problem of the out of date of the study was not treated. Authors do not clearly state at least one of two different issues: i) what is the relevance of a study like this, when it deals with data until 2016; ii) identify this as possible shortcoming, once since 2016 the spillovers could have changed and today, with the presence of another "exciting economic event" (as identified by the authors in page 30) and the information could be not relevant.Response 1: This comment is now accommodated. I have included a limitations section where I highlighted the shortcoming of the study including some possible ways to overcome such limitation in a future study.Point 2: Authors continue stating "this paper contributes to the scarce literature of intra-foreign exchange markets’ channel". The literature about this topic, definitely, is not scarce.Response 2: This argument is removed from the paper now.Point 3: Some figures have captions which are not sufficiently explained. For example: figure 5 is the ARCH(1) model. Ok, but for what? Figures in pages 28 and 29 not fulfil the guidelines. The same in tables (for example, table 7 continues not to be understandable!)Response 3: a clear caption is added to figure 5 and tables (6 and 7). However, it is very difficult to add extra captions to the figures on pages 28 – 29 as there is not space.
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