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Volatility of Changes in G-5 Exchange Rates and Its Market Transmission Mechanism

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  • Huang, Bwo-Nung
  • Yang, Chin Wei

Abstract

This paper studies the transmission mechanism of G-5 exchange rate changes within each market and across the three major markets: London, New York and Tokyo. It is found that the volatility in both the London and New York markets leads that of Tokyo. In addition, the New York market slightly leads the London market in its volatility. After the Euro monetary system crisis, the frequencies of both the volatility spillover effect from London to New York and mutual feedback phenomena have increased. Furthermore, the volatility spillover effects from both London and New York to Tokyo have been on the rise after the Asian financial debacle. Within the framework of the causality model, we find better forecasting performance in predicting G-5 exchange rates across the three markets. It outperforms the traditional ARMA model in terms of both in- and out-sample forecasting. Copyright @ 2002 by John Wiley & Sons, Ltd. All rights reserved.

Suggested Citation

  • Huang, Bwo-Nung & Yang, Chin Wei, 2002. "Volatility of Changes in G-5 Exchange Rates and Its Market Transmission Mechanism," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(1), pages 37-50, January.
    • Handle: RePEc:ijf:ijfiec:v:7:y:2002:i:1:p:37-50
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    Cited by:

    1. John Cotter & Simon Stevenson, 2006. "Multivariate Modeling of Daily REIT Volatility," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 305-325, May.
    2. Meng, Xiangcai & Huang, Chia-Hsing, 2019. "The time-frequency co-movement of Asian effective exchange rates: A wavelet approach with daily data," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 131-148.
    3. J. -H. Chen & C. -Y. Huang, 2010. "An analysis of the spillover effects of exchange-traded funds," Applied Economics, Taylor & Francis Journals, vol. 42(9), pages 1155-1168.
    4. Deqing Diane Li & YingChou Lin & John Jin, 2012. "International Volatility Transmission Of Reit Returns," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(3), pages 41-51.
    5. Hong Rim & Robert Setaputra, 2020. "Equity Market Integration And Diversification: Evidence From Emerging And Developed Countries," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 14(2), pages 51-59.
    6. Palazzi, Rafael Baptista & Júnior, Gerson de Souza Raimundo & Klotzle, Marcelo Cabus, 2021. "The dynamic relationship between bitcoin and the foreign exchange market: A nonlinear approach to test causality between bitcoin and currencies," Finance Research Letters, Elsevier, vol. 42(C).
    7. Bajo-Rubio, Oscar & Berke, Burcu & McMillan, David, 2017. "The behaviour of asset return and volatility spillovers in Turkey: A tale of two crises," Research in International Business and Finance, Elsevier, vol. 41(C), pages 577-589.

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