Volatility Transmission in Emerging European Foreign Exchange Markets

35 Pages Posted: 20 Aug 2011 Last revised: 28 Dec 2011

See all articles by Evžen Kočenda

Evžen Kočenda

Charles University in Prague - Institute of Economic Studies; Institute of Information Theory and Automation (Czech Academy of Sciences) - Department of Econometrics; CESifo; University of Regensburg - Institute for East and Southeast European Studies; University of Michigan at Ann Arbor - The William Davidson Institute

Vit Bubak

Instituto Desarrollo

Filip Zikes

Imperial College London

Multiple version iconThere are 2 versions of this paper

Date Written: July 19, 2011

Abstract

This paper studies the dynamics of volatility transmission between Central European (CE) currencies and the EUR/USD foreign exchange using model-free estimates of daily exchange rate volatility based on intraday data. We formulate a flexible yet parsimonious parametric model in which the daily realized volatility of a given exchange rate depends both on its own lags as well as on the lagged realized volatilities of the other exchange rates. We find evidence of statistically significant intra-regional volatility spillovers among the CE foreign exchange markets. With the exception of the Czech and, prior to the recent turbulent economic events, Polish currencies, we find no significant spillovers running from the EUR/USD to the CE foreign exchange markets. To measure the overall magnitude and evolution of volatility transmission over time, we construct a dynamic version of the Diebold Yilmaz volatility spillover index and show that volatility spillovers tend to increase in periods characterized by market uncertainty.

Keywords: Foreign Exchange Markets, Volatility, Spillovers, Intraday Data, Nonlinear Dynamics

JEL Classification: C5, F31, G15

Suggested Citation

Kocenda, Evzen and Bubak, Vit and Zikes, Filip, Volatility Transmission in Emerging European Foreign Exchange Markets (July 19, 2011). Journal of Banking and Finance, Vol. 35, No. 11, 2011, Available at SSRN: https://ssrn.com/abstract=1912837

Evzen Kocenda (Contact Author)

Charles University in Prague - Institute of Economic Studies ( email )

Opletalova St. 26
Prague, 11000
Czech Republic

HOME PAGE: http://kocenda.fsv.cuni.cz

Institute of Information Theory and Automation (Czech Academy of Sciences) - Department of Econometrics ( email )

Pod vodarenskou vezi 4
CZ-18208 Praha 8
Czech Republic

CESifo

Poschinger Str. 5
Munich, DE-81679
Germany

University of Regensburg - Institute for East and Southeast European Studies

Landshuterstr. 4
Regensburg, 93047
Germany

University of Michigan at Ann Arbor - The William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Vit Bubak

Instituto Desarrollo

Guido Spano 2575
Asunción
Paraguay

Filip Zikes

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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