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Volatility Spillovers between the Equity Market and Foreign Exchange Market in South Africa

This paper attempts to assess the extent of volatility spillovers between the equity market and the foreign exchange market in South Africa. The multi-step family of GARCH models are used for this end, whereby volatility shocks obtained from the mean equation estimation in each market are included in the conditional volatility of the other market, respectively. The appropriate volatility models for each market are selected, following criteria such as covariance stationarity, persistence in variance and leverage effects. The finding indicates that there is a unidirectional relationship in terms of volatility spillovers, from the equity market to the foreign exchange market. The paper supports the view that the extent of foreign participation in the South African equity market contributes to this pattern of volatility spillover.

Working Paper 252
1 October 2011
Related Journal

South African Journal of Economics Vol: 81:2 June 2013
3 June 2013
SHARE THIS Working Paper PUBLICATION:
25 September 2012
Publication Type: Working Paper
JEL Code: C10, F31, G10

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