Dynamics of Volatility Spillover Between Stock and Foreign Exchange Market: Empirical Evidence from Central and Eastern European Countries

Abstract

We use an Exponential Generalised Autoregressive Conditional Heteroskedasticity (EGARCH) model to investigate the asymmetric volatility spillover effects between the stock market and foreign exchange market in Hungary, Poland, the Czech Republic, Romania and Croatia for the pre- and post- financial crisis periods. The whole of the study period covers from 1st April 2000 to 29th September 2017. The results reveal bidirectional volatility spillover between stock and foreign exchange market of Hungary in all periods and Poland in the post-crisis period, unidirectional volatility spillover in Croatia in the pre-crisis period and from the stock market to exchange market in the Czech Republic during two periods. In the post-crisis period, the two financial markets show the non-presence of the volatility spillover between them in Croatia. Furthermore, empirical results from our analysis provide valuable insights to investors, multinational companies and economic policymakers regarding financial decision making.