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Risk and return spillovers among the G10 currencies

Matthew Greenwood-Nimmo, Viet Hoang Nguyen () and Barry Rafferty

Journal of Financial Markets, 2016, vol. 31, issue C, 43-62

Abstract: We study spillovers among daily returns and innovations in the option-implied risk-neutral volatility and skewness of the G10 currencies. Using an empirical network model, we uncover substantial time variation in the interaction of returns and risk measures, both within and between currencies. We find that aggregate spillover intensity is countercyclical with respect to the federal funds rate and increases in periods of financial stress. Cross-currency spillovers of volatility and especially of skewness increase in times of stress, reflecting greater systematic risk. Similarly, in such times, returns become more sensitive to risk measures and vice versa.

Keywords: Foreign exchange markets; Risk-neutral volatility; Risk-neutral skewness; Spillovers; Coordinated crash risk (search for similar items in EconPapers)
JEL-codes: F31 G01 G15 (search for similar items in EconPapers)
Date: 2016
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