Exchange rate spillover effect on Stock Returns: Evidence from Pakistan

Ribbat Khan

doi:10.33897/fujbe.v7i1.539

Ribbat Khan Phd Scholar-LMS. Leadership & Management Studies, National Defense University, Islamabad.

DOI: https://doi.org/10.33897/fujbe.v7i1.539

Keywords: DCC-MGARCH, spillover, exchange rates, stock returns

Abstract

Volatility spillover is measured as the transferal of variability among different financial
markets. The objective of this study is to see if there is any effect volatility spillover among
exchange rates and stock returns in Pakistan or not. For this purpose the secondary data
ranging from April 2010 – April 2020 is collected and analyzed using multivariate dynamic
conditional correlation GARCH (DCC-MGARCH) model. It is observed that there is a
notable volatility spillover impact between the two. This study can be used by different
investing firms and individual investors incorporating the spillover impact in order to hedge
and diversify their portfolios. It can also be used by educational institutions for teaching and
training purposes. It can also help the policy makers providing recommendations regarding
spillover effect between the concerned markets.