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Dynamic correlations and volatility spillovers between Financial Stress, exchange rates and gold prices in BRICS

Yan, Liwen LU (2024) NEKN01 20241
Department of Economics
Abstract
The objective of this study is to investigate the dynamic correlations and volatility spillover effect between the financial stress index (FSI), exchange rates, and gold prices among Brazil, Russia, India, China and South Africa (BRICS countries) over the period between February
2014 and February 2024. The FSI is established using the principal component analysis approach for each country to evaluate the stress level of the financial market in BRICS countries. Two methods are employed to analyse time-varying correlation across markets: the vector autoregressive (VAR) model and the Dynamic Conditional Correlation Generalized
Autoregressive Conditional Heteroskedasticity (DCC-GARCH) model. Furthermore, we utilise an asymmetric Baba, Engle,... (More)
The objective of this study is to investigate the dynamic correlations and volatility spillover effect between the financial stress index (FSI), exchange rates, and gold prices among Brazil, Russia, India, China and South Africa (BRICS countries) over the period between February
2014 and February 2024. The FSI is established using the principal component analysis approach for each country to evaluate the stress level of the financial market in BRICS countries. Two methods are employed to analyse time-varying correlation across markets: the vector autoregressive (VAR) model and the Dynamic Conditional Correlation Generalized
Autoregressive Conditional Heteroskedasticity (DCC-GARCH) model. Furthermore, we utilise an asymmetric Baba, Engle, Kraft and Kroner Generalized Autoregressive Conditional Heteroskedasticity (BEKK-GARCH) model to explore volatility spillovers and leverage effects among three markets. The results show that the FSI is remarkably autocorrelated, and the effects of exchange rates and gold on its volatility show heterogeneity across countries. In addition, using an asymmetric BEKK-GARCH model, we found that all three markets have significant leverage effects of their own, and exchange rates and gold prices have asymmetric volatility spillovers to the FSI for most countries. (Less)
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author
Yan, Liwen LU
supervisor
organization
course
NEKN01 20241
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Dynamic conditional correlation, Volatility spillovers, Asymmetric effect, VAR, DCC-GARCH, BEKK-GARCH
language
English
id
9157355
date added to LUP
2024-10-01 13:10:16
date last changed
2024-10-01 13:10:16
@misc{9157355,
  abstract     = {{The objective of this study is to investigate the dynamic correlations and volatility spillover effect between the financial stress index (FSI), exchange rates, and gold prices among Brazil, Russia, India, China and South Africa (BRICS countries) over the period between February
2014 and February 2024. The FSI is established using the principal component analysis approach for each country to evaluate the stress level of the financial market in BRICS countries. Two methods are employed to analyse time-varying correlation across markets: the vector autoregressive (VAR) model and the Dynamic Conditional Correlation Generalized
Autoregressive Conditional Heteroskedasticity (DCC-GARCH) model. Furthermore, we utilise an asymmetric Baba, Engle, Kraft and Kroner Generalized Autoregressive Conditional Heteroskedasticity (BEKK-GARCH) model to explore volatility spillovers and leverage effects among three markets. The results show that the FSI is remarkably autocorrelated, and the effects of exchange rates and gold on its volatility show heterogeneity across countries. In addition, using an asymmetric BEKK-GARCH model, we found that all three markets have significant leverage effects of their own, and exchange rates and gold prices have asymmetric volatility spillovers to the FSI for most countries.}},
  author       = {{Yan, Liwen}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Dynamic correlations and volatility spillovers between Financial Stress, exchange rates and gold prices in BRICS}},
  year         = {{2024}},
}