Risk and return spillovers among developed and emerging market currencies

Matthew Greenwood-Nimmo, Daan Steenkamp and Rossouw van Jaarsveld

Journal of International Financial Markets, Institutions and Money, 2025, vol. 98, issue C

Abstract: We develop a network model capturing the dynamic interactions among foreign exchange (FX) returns and realized risk measures for 20 developed market (DM) and emerging market (EM) currencies. We show that DM currencies are more integrated within the network than EM currencies on average and tend to become more dependent on external conditions over time. Spillovers between DMs and EMs evolve more rapidly than spillovers within DMs and within EMs and are a major contributor to overall spillover dynamics. Auxiliary regressions reveal that the net DM-to-EM spillover comoves with global factors known to drive EM capital flows.

Keywords: Foreign exchange markets; Higher-order moment risk; Realized moments; Network modeling; Spillovers (search for similar items in EconPapers)
JEL-codes: F31 G01 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:98:y:2025:i:c:s1042443124001525

DOI: 10.1016/j.intfin.2024.102086

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