Volatility Connectedness on the Central European Forex Markets

Peter Albrecht (), Evžen Kočenda and Evžen Kocenda
Authors registered in the RePEc Author Service: Evžen Kočenda

No 10728, CESifo Working Paper Series from CESifo

Abstract: We provide a comprehensive assessment of volatility connectedness between the currencies of Central European (CE) countries using high-frequency data from 2009 to 2022. We assess asymmetries in connectedness (not investigated for CE currencies before) and document domination of the negative volatility, especially during periods of economic distress. We further bring the first statistical evidence based on a formal bootstrap-after-bootstrap procedure of Greenwood-Nimmo et al. (2023) that increases in connectedness are linked with systematic events, and identify the impact of specific domestic and global shocks. We find that for eight out of eight endogenously selected global events, there was an increase in connectedness within a maximum of one business month from the event's occurrence. Finally, we show that the connectedness is linked with its potential drivers: uncertainty, liquidity, and economic activity whose impacts differ substantially. Our results are robust with respect to a volatility measure and provide direct policy implications for portfolio composition and hedging.

Keywords: volatility connectedness; Central European currencies; asymmetries in volatility connectedness; bootstrap-after-bootstrap procedure; portfolio composition and hedging (search for similar items in EconPapers)
JEL-codes: C58 F31 F65 G01 G15 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-rmg
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Journal Article: Volatility connectedness on the central European forex markets (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10728

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