Volatility Transmission in Emerging European Foreign Exchange Markets

Evžen Kočenda, Vit Bubak and Filip Zikes

No wp1020, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This paper studies the dynamics of volatility transmission between Central European (CE) currencies and the EUR/USD foreign exchange using model-free estimates of daily exchange rate volatility based on intraday data. We formulate a flexible yet parsimonious parametric model in which the daily realized volatility of a given exchange rate depends both on its own lags as well as on the lagged realized volatilities of the other exchange rates. We find evidence of statistically significant intra-regional volatility spillovers among the CE foreign exchange markets. With the exception of the Czech and, prior to the recent turbulent economic events, Polish currencies, we find no significant spillovers running from the EUR/USD to the CE foreign exchange markets. To measure the overall magnitude and evolution of volatility transmission over time, we construct a dynamic version of the Diebold-Yilmaz volatility spillover index and show that volatility spillovers tend to increase in periods characterized by market uncertainty.

Keywords: Foreign exchange markets; Volatility; Spillovers; Intraday data; Nonlinear dynamics; European emerging markets (search for similar items in EconPapers)
JEL-codes: C5 F31 G15 (search for similar items in EconPapers)
Pages: pages
Date: 2011-07-01
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon, nep-mst and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (167)

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Related works:
Journal Article: Volatility transmission in emerging European foreign exchange markets (2011)
Working Paper: Volatility Transmission in Emerging European Foreign Exchange Markets (2010)
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