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Volatility spillovers between exchange rates and Indian stock markets in the post-recession period: an APARCH approach

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  • Bhaskar Bagchi

Abstract

In this paper, we examine the dynamic relationship between stock prices volatility and exchange rates volatility in Indian context in the post-recession period from 12 July, 2009 to 1 February, 2015. The stock prices volatility is partly explained by volatility in exchange rates. We adopt an asymmetric power ARCH (APARCH) model which takes into account long memory behaviour, speed of market information, asymmetries and leverage effects. For BSE Sensex, NIFTY and JPY/INR there is an asymmetric response of volatilities to positive and negative shocks and negative correlation exists between returns and volatility and thus bad news will create greater volatility. However, for USD/INR, Euro/INR and GBP/INR good news has greater effect on price volatility than the bad news. The study results also suggest the presence long memory behaviour and persistent volatility clustering phenomenon amongst exchange rates and stock markets.

Suggested Citation

  • Bhaskar Bagchi, 2016. "Volatility spillovers between exchange rates and Indian stock markets in the post-recession period: an APARCH approach," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(3), pages 225-244.
    • Handle: RePEc:ids:ijmefi:v:9:y:2016:i:3:p:225-244
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    References listed on IDEAS

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    1. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
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    4. Dhaoui, Abderrazak & Khraief, Naceur, 2014. "Empirical linkage between oil price and stock market returns and volatility: Evidence from international developed markets," Economics Discussion Papers 2014-12, Kiel Institute for the World Economy (IfW Kiel).
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    Cited by:

    1. Sushil Kumar Rai & Akhilesh Kumar Sharma, 2023. "Forecasting Exchange Rate Volatility In India Under Univariate And Multivariate Analysis," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 26(1), pages 175-190, March.
    2. Kim Karlsson, Hyunjoo & Li, Yushu, 2024. "Investigation of Swedish krona exchange rate volatility by APARCH-Support Vector Regression," Working Papers in Economics and Statistics 10/2024, Linnaeus University, School of Business and Economics, Department of Economics and Statistics.
    3. Futeri Jazeilya Md Fadzil & John G. O’Hara & Wing Lon Ng, 2017. "Cross-sectional volatility index as a proxy for the VIX in an Asian market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1364011-136, January.

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