Assessing the Asymmetric Effect of Local Realized Exchange Rate Volatility and Implied Volatilities in Energy Market on Exchange Rate Returns in BRICS

Thobekile Qabhobho
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Thobekile Qabhobho: Department of Economics, Faculty of Business and Economic Sciences, Nelson Mandela University, Port Elizabeth, South Africa.

International Journal of Energy Economics and Policy, 2023, vol. 13, issue 2, 231-239

Abstract: This paper investigates the leverage effect of local realised exchange rate volatility and implied volatilities in energy market on exchange rate returns in BRICS for the period May 7, 2012 to March 31, 2022, using the quantile regression technique. This paper reveals that oil implied volatility shocks (OVX changes) have a significant negative impact on Russian-U.S. Dollar exchange rate returns in all quantiles. When it comes to the Indian rupee and Chinese RMB returns/Dollar, the adverse effects of OVX are most apparent in both normal and booming market conditions. Although South Africa's currency rate returns are affected by both slump- and bust-market situations, Brazil also tends to be in higher quantiles. The implied volatility indices in the energy market have a substantial and considerable negative impact on the BRICS currencies, with the exception of China, where the effect is only noticeable in the upper extreme quantiles. The policy implications and suggestions are discussed.

Keywords: Asymmetric Effect; BRICS; Implied Volatilities in Energy Market; Currency Returns; Quantile Regression (search for similar items in EconPapers)
JEL-codes: G10 G15 G19 O13 (search for similar items in EconPapers)
Date: 2023
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