 Conditional volatility persistence and volatility spillovers in the foreign exchange marketFei Su Research in International Business and Finance, 2021, vol. 55, issue C Abstract: I investigate the magnitudes and determinants of volatility spillovers in the foreign exchange (FX) market, using realized measures of volatility and heterogeneous autoregressive (HAR) models. I confirm both meteor shower effects (i.e., inter-regional volatility spillovers) and heat wave effects (i.e., intra-regional volatility spillovers) in the FX market. Furthermore, I find that conditional volatility persistence is the dominant channel linking the changing market states of each region to future volatility and its spillovers. Market state variables contribute to more than half of the explanatory power in predicting conditional volatility persistence, with the model that calibrates volatility persistence and spillovers conditionally on market states performing statistically and economically better. The utilization of market state variables significantly extends our understanding of the economic mechanisms of volatility persistence and spillovers and sheds new light on econometric techniques for volatility modeling and forecasting. Keywords: Conditional volatility persistence; Volatility spillover; Market states; Foreign exchange market (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:55:y:2021:i:c:s0275531920301094 DOI: 10.1016/j.ribaf.2020.101312 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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