Open AccessVolatility Spillover Effects Between Stock Prices and Exchange Rates in Emerging Economies: Evidence from Turkey
Author(s) -
Erick Lusekelo Mwambuli,
Xianzhi Zhang,
Zakayo Samson Kisava
Publication year - 2016
Publication title -
business and economic research
Language(s) - English
Resource type - Journals
ISSN - 2162-4860
DOI - 10.5296/ber.v6i2.10245
Subject(s) - spillover effect , stock exchange , economics , volatility (finance) , monetary economics , exchange rate , stock (firearms) , stock market , emerging markets , financial economics , market maker , macroeconomics , finance , mechanical engineering , paleontology , horse , biology , engineering
Volatility spillover effects between stock prices and exchange rates in emerging countries are a critical focus in the financial economics research arena. This paper focused to investigate the volatility spillover effects between stock prices and exchange rates of Istanbul stock exchange (ISE) by employing an exponential generalized autoregressive condition heteroskedasticity (EGARCH) model. The period of study covered 11 years (i.e. 2005 to 2015) inclusive a period of the global financial crises (i.e. from 2005 to 2009) which resulted out from subprime mortgage in United States of America (USA).Our results suggest an existence of short run relationship between stock prices and exchange rates in Istanbul stock exchange (ISE).This empirical evidence suggest that there is symmetric volatility spillover between stock prices and exchange rates of Istanbul stock exchange (ISE) for full sample employed as a result good and bad news has got a balanced effect to the market. The findings of the significant volatility spillover effects between exchange rates and stock prices suggest that, the markets are informationally efficient and one market exchange rate has significant predictive power of equal weight to another in case of two markets. Our study recommends investors and multinational firm managers to consider the general behaviour of the financial market before making decision whether to invest in or not since there is existence of relationship and volatility spillover between stock prices and exchange rates meanwhile economic policy makers both in Turkey and outside Turkey should consider these findings in their policy as one of the determinant to economic growth, as macroeconomic variable should be stable like exchange rates. Furthermore, this study may be extended after including of other variables which were not considered in this study like interest rate, inflation and agency theory.