Volatility Spillover Between the Stock Market and the Foreign Exchange Market in Pakistan

Abdul Qayyum and Abdul Razzaq Kemal

MPRA Paper from University Library of Munich, Germany

Abstract: Our paper examines the volatility spillover between the stock market and the foreign exchange market in Pakistan. For long run relationship we use Engle Granger two step procedure and the volatility spillover is modelled through bivariate EGARCH method. The estimated results from cointegration analysis show that there is no long run relationship between the two markets. The results from the volatility modelling show that the behaviour of both the stock exchange and the foreign exchange markets are interlinked. The returns of one market are affected by the volatility of other market. Particularly the returns of the stock market are sensitive to the returns as well as the volatility of foreign exchange market. On the other hand returns in the foreign exchange market are mean reverting and they are affected by the volatility of stock market returns. There is strong relationship between the volatility of foreign exchange market and the volatility of returns in stock market.

Keywords: Stock Market; Forex Market; EGARCH; Volatility Spillover; Stock market return; Foreign Exchange return; Pakistan (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cwa, nep-fmk, nep-ifn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Published in PIDE Working Papers 2006:7 (2006): pp. 1-16

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