This paper studies the dynamics of volatility transmission between Central European currencies and euro/dollar foreign exchange using model-free estimates of daily exchange rate volatility based on intraday data. We formulate a flexible yet parsimonious parametric model in which the daily realized volatility of a given exchange rate depends both on its own lags as well as on the lagged realized volatilities of the other exchange rates. We find evidence of statistically significant intra-regional volatility spillovers among the Central European foreign exchange markets. With the exception of the Czech currency, we find no significant spillovers running from euro/dollar to the Central European foreign exchange markets. To measure the overall magnitude and evolution of volatility transmission over time, we construct a dynamic version of the Diebold-Yilmaz volatility spillover index, and show that volatility spillovers tend to increase in periods characterized by market uncertainty.
Volatility Transmission in Emerging European Foreign Exchange Markets
Vit Bubak,Evézen Kocenda,Filip Žikeš
Published 2011 in Social Science Research Network
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- Publication year
2011
- Venue
Social Science Research Network
- Publication date
2011-07-19
- Fields of study
Chemistry, Economics
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