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Risk and return spillovers among developed and emerging market currencies

Author

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  • Greenwood-Nimmo, Matthew
  • Steenkamp, Daan
  • Jaarsveld, Rossouw van

Abstract

We develop a network model capturing the dynamic interactions among foreign exchange (FX) returns and realized risk measures for 20 developed market (DM) and emerging market (EM) currencies. We show that DM currencies are more integrated within the network than EM currencies on average and tend to become more dependent on external conditions over time. Spillovers between DMs and EMs evolve more rapidly than spillovers within DMs and within EMs and are a major contributor to overall spillover dynamics. Auxiliary regressions reveal that the net DM-to-EM spillover comoves with global factors known to drive EM capital flows.

Suggested Citation

  • Greenwood-Nimmo, Matthew & Steenkamp, Daan & Jaarsveld, Rossouw van, 2025. "Risk and return spillovers among developed and emerging market currencies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:intfin:v:98:y:2025:i:c:s1042443124001525
    DOI: 10.1016/j.intfin.2024.102086
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    More about this item

    Keywords

    Foreign exchange markets; Higher-order moment risk; Realized moments; Network modeling; Spillovers;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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