Risk and Return Spillovers among the G10 Currencies

Matthew Greenwood-Nimmo, Viet Hoang Nguyen and Barry Rafferty
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Barry Rafferty: Department of Economics, The University of Melbourne

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: We study spillovers among daily returns and innovations in option-implied risk-neutral volatility and skewness of the G10 currencies. An empirical network model uncovers substantial time variation in the interaction of risk measures and returns, 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. During these times, volatility spillovers and especially skewness spillovers between currencies increase, reflecting greater systematic risk. Likewise, linkages between returns and risk measures strengthen in times of stress, with returns becoming 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: C58 F31 G01 G15 (search for similar items in EconPapers)
Pages: 51pp
Date: 2016-02
New Economics Papers: this item is included in nep-net and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (94)

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Journal Article: Risk and return spillovers among the G10 currencies (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2016n04

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