Effect of exchange rate return on volatility spill-over across trading regions

Don U.A. Galagedera, Yoshihiro Kitamura

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This paper examines the effect of realized exchange rate returns on the volatility spill-over between the euro–US dollar and US dollar–yen currency pairs across the five trading regions: Asia, Asia–Europe overlap, Europe, Europe–America overlap and America. Modelling the interaction between returns and volatility in an autoregressive five-equation system, we find evidence that depreciation of the US dollar against the yen has a greater impact on the US dollar–yen volatility spill-over than appreciation in the subprime crisis period. Appreciation and depreciation of the US dollar against the euro does not appear to have an asymmetric effect on the euro–US dollar volatility spill-over. Our results support the notion that the yen may have been preferred to the euro as a ‘safe-haven’ currency relative to the US dollar during the subprime crisis period.

Original languageEnglish
Pages (from-to)254-265
Number of pages12
JournalJapan and The World Economy
Volume24
Issue number4
DOIs
Publication statusPublished - 2012 Dec 1

Keywords

  • Exchange rate
  • High-frequency data
  • Volatility spill-over

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

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