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Return Linkages and Volatility Spillover Effect Between Stock Markets and Currency Markets

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  • Gagan Deep Sharma
  • Namish Mishra

Abstract

This article undertakes the analysis of volatility and volatility spillover between stock market and currency market in India. Daily closing levels of the benchmark indices are taken for the period 1 April 2003–31 December 2013. The data are analysed through unit root tests, Autoregressive Conditionally Heteroskedastic (ARCH) family models, Johansen’s cointergation test, vector error correction model and diagonal Vector Error Correction Heteroskedastic (VECH) model. The results indicate a bidirectional volatility spillover between the Indian stock market and a currency market. The findings of the study also suggest that both the markets move in tandem with each other and there is a long-run relationship between these two markets.

Suggested Citation

  • Gagan Deep Sharma & Namish Mishra, 2015. "Return Linkages and Volatility Spillover Effect Between Stock Markets and Currency Markets," Review of Market Integration, India Development Foundation, vol. 7(3), pages 175-197, December.
    • Handle: RePEc:sae:revmar:v:7:y:2015:i:3:p:175-197
    DOI: 10.1177/0974929216674377
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    Cited by:

    1. Mansi Jain & Gagan Deep Sharma & Mrinalini Srivastava, 2019. "Can Sustainable Investment Yield Better Financial Returns: A Comparative Study of ESG Indices and MSCI Indices," Risks, MDPI, vol. 7(1), pages 1-18, February.

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    More about this item

    Keywords

    Stock market; currency market; volatility spillover; ARCH; Johansen’s cointergation; diagonal VECH;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G19 - Financial Economics - - General Financial Markets - - - Other

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