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Asymmetries in risk spillovers between currency and stock markets: Evidence from the CoVaR-copula approach

Author

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  • Yi-Chiuan Wang

    (Tunghai University)

  • Yi-hao Lai

    (Dayeh University)

  • Jyh-Lin Wu

    (National Sun Yat-Sen University)

Abstract

We estimate conditional value-at-risk (CoVaR) for stock and currency markets under different market statuses and then apply them to study the asymmetry of risk spillovers between currency and stock markets under different market statuses. Empirical results show that risk spillovers between different statuses in stock and currency markets are significant and asymmetric. Next, for most countries, the scale and volatility of CoVaR are more prominent when return-chasing effects, rather than portfolio rebalancing effects, dominate. Finally, when stock prices in major industrial countries fall sharply or currencies depreciate significantly, investing in Japanese stocks is relatively safe for U.S. investors.

Suggested Citation

  • Yi-Chiuan Wang & Yi-hao Lai & Jyh-Lin Wu, 2024. "Asymmetries in risk spillovers between currency and stock markets: Evidence from the CoVaR-copula approach," Review of Quantitative Finance and Accounting, Springer, vol. 63(3), pages 1083-1119, October.
    • Handle: RePEc:kap:rqfnac:v:63:y:2024:i:3:d:10.1007_s11156-024-01285-1
    DOI: 10.1007/s11156-024-01285-1
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    More about this item

    Keywords

    Exchange rates; Stock prices; Risk spillovers; Copula; CoVaR;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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