Greek Debt Negotiations and VIX Currency Indices: A HYGARCH Approach

Abstract

This study investigates the impact of the Greek debt negotiations, along with the increasing fears of a “Grexit”, on British pound (GBP), Euro (EUR) and Japanese Yen (JPY) currencies. Their respective implied volatility currency indices (i.e., BPVIX, EUVIX and JYVIX) were used on daily changes, in order to estimate Hyperbolic GARCH(1,d,1) model with a “negotiations” dummy in the mean equation. The results indicated the immunity of BPVIX, EUVIX and JYVIX to Greece’s debt negotiations with its creditors. Thus, the corresponding central banks have solidly established a firewall of protection against a potential “Grexit”.