Volatility Transmission in Emerging European Foreign Exchange Markets

Vit Bubak, Evžen Kočenda and Filip Zikes

No 3063, CESifo Working Paper Series from CESifo

Abstract: This paper studies the dynamics of volatility transmission between Central European currencies and euro/dollar 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 Central European foreign exchange markets. With the exception of the Czech currency, we find no significant spillovers running from euro/dollar to the Central European 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 (search for similar items in EconPapers)
JEL-codes: C50 F31 G15 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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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 (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3063

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