ORCID
Emenike Kalu 0000-0002-3599-0281
Keywords
Stock market; Foreign exchange market; Volatility transmission; BEKK-GARCH-model
Abstract
The direction of volatility transmission between stock and foreign exchange markets is important for hedging strategy, portfolio management and financial market regulation. This paper examines volatility transmission between stock and foreign exchange markets by applying the multivariate GARCH model in the BEKK framework to Nigerian stock returns and the Naira/USD exchange rate data from January 1996 to March 2013. Results of the empirical analysis show evidence of volatility clustering in both stock and foreign exchange markets. The results also show bi-directional shock transmission between stock and foreign exchange markets, suggesting that information flow in the foreign exchange market impact the stock market and vice versa. Finally, the results show evidence of a uni-directional volatility transmission from the foreign exchange market to the stock market. The implication is for investors vigilantly to monitor and dissect all information in the two markets as part of their investment strategy.
Recommended Citation
Kalu, E. (2024). Volatility Transmission Between Stock and Foreign. Journal of Banking and Financial Economics, 2014(1), 59-72. https://doi.org/10.7172/2353-6845.jbfe.2014.1.4
First Page
59
Last Page
72
Page Count
14
Received Date
6 December 2013
Revised Date
13 January 2014
Accept Date
20 January 2014
Online Available Date
19 May 2014
DOI
10.7172/2353-6845.jbfe.2014.1.4
JEL Code
G11; C32
Publisher
University of Warsaw