Volatility spillovers and dynamic correlations among foreign exchange rates and bond markets of emerging economies

Resul Aydemir; Bulent Guloglu; Ercan Saridogan

doi:10.2298/PAN171017020A

Volatility spillovers and dynamic correlations among foreign exchange rates and bond markets of emerging economies

Resul Aydemir^*, Bulent Guloglu, Ercan Saridogan

^*Corresponding author for this work

Department of Economics

Istanbul University

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

Abstract

Summary: In this paper, we first examine how important historical shocks during and after the 2007-2008 global financial crisis affect the size and the persistence of volatilities among exchange rates and the ten-year bond rates of the Fragile Five countries (i.e., Brazil, India, Indonesia, South Africa and Turkey). We then investigate separately the dynamic interactions between exchange rates and the ten-year bond rates of the Fragile Five. We utilize a multivariate GARCH model (FIAPARCH-DCC model) and volatility impulse response functions to achieve these objectives. The results suggest that shocks’ positive impacts on expected conditional variances of the variables are largely market-specific and different. Shocks have a more significant impact on bond markets than on foreign exchange markets. We also find that the dynamic conditional correlation series of bonds exhibit much lower correlations than those associated with exchange rate returns.

Original language	English
Pages (from-to)	99-127
Number of pages	29
Journal	Panoeconomicus
Volume	68
Issue number	1
DOIs	https://doi.org/10.2298/PAN171017020A
Publication status	Published - 2021

Bibliographical note

Publisher Copyright:
© 2021, Savez Ekonomista Vojvodine. All rights reserved.

Funding

Acknowledgement: Preliminary empirical results were presented at conferences including ASSA Meetings (MEEA) in Boston (January 2015), World Finance Conference in Buenos Aires (July 2015), 4th Economics and Finance Con-ference in London (August 2015). We benefited from comments and suggestions from Shawkat Ham-moudeh, Mehmet Balcilar and other participants of these conferences. We thank them all. We also thank the editor of the journal and two anonymous referees for valuable suggestions. This work was supported by the Scientific and Technological Research Council of Turkey (TUBITAK) (Grant No: 114K519).

Funders	Funder number
TUBITAK	114K519
Türkiye Bilimsel ve Teknolojik Araştirma Kurumu

Keywords

Dynamic corre-lations
Emerging markets
Exchange rates
Interest rates
Volatility spillovers

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.2298/PAN171017020A

Cite this

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abstract = "Summary: In this paper, we first examine how important historical shocks during and after the 2007-2008 global financial crisis affect the size and the persistence of volatilities among exchange rates and the ten-year bond rates of the Fragile Five countries (i.e., Brazil, India, Indonesia, South Africa and Turkey). We then investigate separately the dynamic interactions between exchange rates and the ten-year bond rates of the Fragile Five. We utilize a multivariate GARCH model (FIAPARCH-DCC model) and volatility impulse response functions to achieve these objectives. The results suggest that shocks{\textquoteright} positive impacts on expected conditional variances of the variables are largely market-specific and different. Shocks have a more significant impact on bond markets than on foreign exchange markets. We also find that the dynamic conditional correlation series of bonds exhibit much lower correlations than those associated with exchange rate returns.",

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T1 - Volatility spillovers and dynamic correlations among foreign exchange rates and bond markets of emerging economies

AU - Aydemir, Resul

AU - Guloglu, Bulent

AU - Saridogan, Ercan

PY - 2021

Y1 - 2021

N2 - Summary: In this paper, we first examine how important historical shocks during and after the 2007-2008 global financial crisis affect the size and the persistence of volatilities among exchange rates and the ten-year bond rates of the Fragile Five countries (i.e., Brazil, India, Indonesia, South Africa and Turkey). We then investigate separately the dynamic interactions between exchange rates and the ten-year bond rates of the Fragile Five. We utilize a multivariate GARCH model (FIAPARCH-DCC model) and volatility impulse response functions to achieve these objectives. The results suggest that shocks’ positive impacts on expected conditional variances of the variables are largely market-specific and different. Shocks have a more significant impact on bond markets than on foreign exchange markets. We also find that the dynamic conditional correlation series of bonds exhibit much lower correlations than those associated with exchange rate returns.

AB - Summary: In this paper, we first examine how important historical shocks during and after the 2007-2008 global financial crisis affect the size and the persistence of volatilities among exchange rates and the ten-year bond rates of the Fragile Five countries (i.e., Brazil, India, Indonesia, South Africa and Turkey). We then investigate separately the dynamic interactions between exchange rates and the ten-year bond rates of the Fragile Five. We utilize a multivariate GARCH model (FIAPARCH-DCC model) and volatility impulse response functions to achieve these objectives. The results suggest that shocks’ positive impacts on expected conditional variances of the variables are largely market-specific and different. Shocks have a more significant impact on bond markets than on foreign exchange markets. We also find that the dynamic conditional correlation series of bonds exhibit much lower correlations than those associated with exchange rate returns.

KW - Dynamic corre-lations

KW - Emerging markets

KW - Exchange rates

KW - Interest rates

KW - Volatility spillovers

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DO - 10.2298/PAN171017020A

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Volatility spillovers and dynamic correlations among foreign exchange rates and bond markets of emerging economies

Abstract

Bibliographical note

Funding

Keywords

UN SDGs

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