Title: Volatility spillovers between exchange rates and Indian stock markets in the post-recession period: an APARCH approach
Author: Bhaskar Bagchi
Address: Department of Commerce, Alipurduar College, Jalpaiguri 736 122, West Bengal, India
Abstract: In this paper, we examine the dynamic relationship between stock prices volatility and exchange rates volatility in Indian context in the post-recession period from 12 July, 2009 to 1 February, 2015. The stock prices volatility is partly explained by volatility in exchange rates. We adopt an asymmetric power ARCH (APARCH) model which takes into account long memory behaviour, speed of market information, asymmetries and leverage effects. For BSE Sensex, NIFTY and JPY/INR there is an asymmetric response of volatilities to positive and negative shocks and negative correlation exists between returns and volatility and thus bad news will create greater volatility. However, for USD/INR, Euro/INR and GBP/INR good news has greater effect on price volatility than the bad news. The study results also suggest the presence long memory behaviour and persistent volatility clustering phenomenon amongst exchange rates and stock markets.
Keywords: APARCH; asymmetric power ARCH; BSE Sensex; NIFTY; exchange rates; exchange rate volatility; volatility spillovers; India; stock markets; stock price volatility; long memory behaviour; market information speed; asymmetry; leverage effects; persistent volatility clustering.
Int. J. of Monetary Economics and Finance, 2016 Vol.9, No.3, pp.225 - 244
Available online: 04 Aug 2016