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

Author(s)
Lumengo Bonga-Bonga and Jamela Hoveni
Publication date
October 2011
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.
Publication PDF
Series title
Working Paper 252
Journal
South African Journal of Economics Vol: 81:2 June 2013
JEL classifications