Premium
Global Volatility and Forex Returns in East Asia *
Author(s) -
Kalra Sanjay
Publication year - 2011
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/j.1468-2443.2011.01132.x
Subject(s) - volatility (finance) , foreign exchange market , economics , equity (law) , autoregressive conditional heteroskedasticity , monetary economics , volatility smile , financial market , implied volatility , financial economics , volatility risk premium , depreciation (economics) , exchange rate , finance , capital formation , financial capital , law , political science , economic growth , human capital
During 2001–2010, increases in mature market volatility were associated with declines in forex returns for East Asian economies, consistent with an overall ‘flight to safety’ effect. Estimates from GARCH models suggest that a 10 percentage point increase in mature market equity volatility generated an exchange rate depreciation of up to 3/4 percent. This sensitivity rose during a more tranquil subsample for some countries, reflecting their greater integration with global financial markets. Long‐run forex volatility increased in Asian economies after 2008, reflecting the global reach of the financial crisis in mature markets. Unconditional standard deviations estimated from these models provide operational measures of ‘long‐term’ and ‘excess’ volatility in forex markets.