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Asymmetric volatility transmission between the real exchange rate and stock returns in South Africa

Ayanda Sikhosana and Goodness C. Aye

Economic Analysis and Policy, 2018, vol. 60, issue C, 1-8

Abstract: This paper analyses the asymmetric volatility spillovers between the real exchange rate and stock returns in South Africa. A Multivariate Exponential Generalised Autoregressive Conditionally Heteroskedastic (EGARCH) model alongside other asymmetric GARCH models (GJR GARCH and APARCH) were estimated using monthly data from 1996 to 2016 to examine the relationship. The results show that there is a bi-directional volatility spillover effect between the two markets in the short-run. Also these effects are asymmetric. These findings suggest that while information in one market can be used to forecast changes in the other, these financial assets should not be included in the same portfolio when diversifying risk.

Keywords: Volatility; Stock market; Risk; Exchange rates; Asymmetry (search for similar items in EconPapers)
JEL-codes: C58 F31 G17 (search for similar items in EconPapers)
Date: 2018
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