International Journal of Business and Economics Volume 3, No. 2 August, 2004

Price and Volatility Spillovers between Stock Prices and Exchange Rates: Empirical Evidence from the G-7 Countries

Sheng-Yung Yang

Department of Finance, National Chung Hsing University, Taiwan

Shuh-Chyi Doong

Department of Finance, National Chung Hsing University, Taiwan

Abstract

This paper explores the nature of the mean and volatility transmission mechanism between stock and foreign exchange markets for the G-7 countries. Empirical evidence supports the asymmetric volatility spillover effect and shows that movements of stock prices will affect future exchange rate movements, but changes in exchange rates have less direct impact on future changes of stock prices. The implication is particularly important to international portfolio managers when devising hedging and diversification strategies for their portfolios.

Keywords：exchange rate, stock price, bivariate EGARCH model, asymmetric volatility spillover.

JEL Classifications：C22, F31, G12.

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