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Exchange rate comovements, hedging and volatility spillovers on new EU forex markets

Evžen Kočenda and Michala Moravcova ()

Journal of International Financial Markets, Institutions and Money, 2019, vol. 58, issue C, 42-64

Abstract: We analyze time-varying exchange rate co-movements, hedging ratios, and volatility spillovers on the new EU forex markets during 1999M1-2018M5. We document significant differences in the extent of currency comovements during various periods of market distress that are related to real economic and financial events. These imply favorable diversification benefits: the hedge-ratio calculations show all three currencies bring hedging benefits during crisis periods, but at different costs. During calm periods, most of the volatilities are due to each currency’s own history. During the distress periods, volatility spillovers among currencies increase substantially and the Hungarian currency assumes a leading role.

Keywords: Exchange rates; New EU forex markets; Volatility; DCC model; Volatility spillover index; Portfolio weights and hedge ratios; EU debt crisis; Global financial crisis (search for similar items in EconPapers)
JEL-codes: C52 F31 F36 G15 P59 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Exchange Rate Co-movements, Hedging and Volatility Spillovers in New EU Forex Markets (2017) Downloads
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DOI: 10.1016/j.intfin.2018.09.009

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