THE RELATIONSHIP BETWEEN STOCK MARKET AND EXCHANGE RATE WITH DYNAMIC VOLATILITY SPILLOVER: EVIDENCE FROM ASIA-PACIFIC REGION
Keywords:Volatility spillover, connectedness, causality, cointegration
This study investigates the dynamic relationship between the stock market and exchange rates, using daily data from 1994 to 2018. Johansen’s cointegration analysis shows significant long-run relationships for Hong Kong. The Granger causality tests show a significant bi-directional and uni-directional causality in the Asia-Pacific region, except for China. Results also show volatility spillovers in the UK, Germany, and the USA, which persistently influence the stock market and exchange rates in the Asia-Pacific region. During crisis, the stock market is better in capturing total volatility spillovers than the exchange rate.