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The volatility spillovers between stock markets and exchange rates - Evidence from North- and South America

Kristinsson, Daníel LU (2014) NEKN01 20142
Department of Economics
Abstract
The aim of this thesis is to look at volatility spillovers between the exchange rate changes and the stock market returns. The theoretical relationship between the exchange rate and stock market is covered with focus on two basic models, the stock oriented model and the flow oriented model. The relationship between the two variables is positive in the stock oriented model while it is negative in the flow oriented model. An empirical study is done on Brazil, Canada, Mexico and the United States from 1999-2014 using a GARCH-BEKK model. Three results from the model are obtained, the whole sample and before and after the financial crisis in 2008. According to the study there are significant spillovers between the exchange rate and stock market... (More)
The aim of this thesis is to look at volatility spillovers between the exchange rate changes and the stock market returns. The theoretical relationship between the exchange rate and stock market is covered with focus on two basic models, the stock oriented model and the flow oriented model. The relationship between the two variables is positive in the stock oriented model while it is negative in the flow oriented model. An empirical study is done on Brazil, Canada, Mexico and the United States from 1999-2014 using a GARCH-BEKK model. Three results from the model are obtained, the whole sample and before and after the financial crisis in 2008. According to the study there are significant spillovers between the exchange rate and stock market for some periods and countries but it is not consistent throughout. In general the spillovers are strongest after the crisis in 2008 for all countries. In the United States and Canada the spillovers are stronger from the stock market to the exchange rate while the spillover for Mexico and Brazil are stronger from the exchange rate to the stock market. (Less)
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author
Kristinsson, Daníel LU
supervisor
organization
course
NEKN01 20142
year
type
H1 - Master's Degree (One Year)
subject
keywords
GARCH-BEKK model, Volatility spillovers, Stock returns, Exchange rates, North American countries
language
English
id
4698179
date added to LUP
2014-11-03 10:26:51
date last changed
2014-11-03 10:26:51
@misc{4698179,
  abstract     = {The aim of this thesis is to look at volatility spillovers between the exchange rate changes and the stock market returns. The theoretical relationship between the exchange rate and stock market is covered with focus on two basic models, the stock oriented model and the flow oriented model. The relationship between the two variables is positive in the stock oriented model while it is negative in the flow oriented model. An empirical study is done on Brazil, Canada, Mexico and the United States from 1999-2014 using a GARCH-BEKK model. Three results from the model are obtained, the whole sample and before and after the financial crisis in 2008. According to the study there are significant spillovers between the exchange rate and stock market for some periods and countries but it is not consistent throughout. In general the spillovers are strongest after the crisis in 2008 for all countries. In the United States and Canada the spillovers are stronger from the stock market to the exchange rate while the spillover for Mexico and Brazil are stronger from the exchange rate to the stock market.},
  author       = {Kristinsson, Daníel},
  keyword      = {GARCH-BEKK model,Volatility spillovers,Stock returns,Exchange rates,North American countries},
  language     = {eng},
  note         = {Student Paper},
  title        = {The volatility spillovers between stock markets and exchange rates - Evidence from North- and South America},
  year         = {2014},
}