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Dynamics of Price and Volatility Spillovers Among Stock and Foreign Exchanges: Evidence from South Asian Countries

Author

Listed:
  • Samarakoon, SMRK

    (Wayamba University of Sri Lanka, Sri Lanka & Indian Institute of Technology Kharagpur, India)

  • Pradhan, Rudra P.

    (ndian Institute of Technology Kharagpur, India)

  • Ediriweeera, EAIN

    (Wayamba University of Sri Lanka, Sri Lanka)

  • Maradana, Rana P.

    (Indian Institute of Technology Hyderabad, India)

Abstract

Our study focused on exploring the volatility spillover between foreign currency and stock markets, as well as the price dynamics of financial instruments traded in South Asian countries. We use daily data from 2001 to 2021 on the closing exchange rates of local currency to the US dollar and closing stock price indices of these countries. To capture the volatility spillover effect, we utilized the GARCH-BEKK model and used Granger Causality test results to test the price dynamics of these markets. Our findings revealed that the own volatility shocks significantly affect current market behavior and volatility effects spill over bi-directionally between foreign exchange rates and stock price indices in these countries. This study provides valuable insights for both domestic and international investors to understand the South Asian stock and foreign exchange markets, enabling them to make more efficient investment decisions based on the best market conditions.

Suggested Citation

  • Samarakoon, SMRK & Pradhan, Rudra P. & Ediriweeera, EAIN & Maradana, Rana P., 2024. "Dynamics of Price and Volatility Spillovers Among Stock and Foreign Exchanges: Evidence from South Asian Countries," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 49(2), pages 111-138, June.
    • Handle: RePEc:ris:jecdev:0089
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    More about this item

    Keywords

    GARCH BEKK Model; Volatility Spillover Effect; South Asian Markets;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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