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Volatility Spillover Effect between Financial Markets in Emerging Markets

Student: Yan Imstichey

Supervisor: Anastasia N. Stepanova

Faculty: Faculty of Economic Sciences

Educational Programme: Strategic Corporate Finance (Master)

Year of Graduation: 2020

The main idea of this paper is to determine the volatility spillover effects between foreign exchange market and stock market and investigation of the best fitting model using AIC, for this purpose INR/CNY foreign exchange rate was used and SENSEX index for stock market of India. The data taken is in monthly terms from 03.1990 to 01.2020. After testing the data for stationarity, co-integration, normality and autocorrelation and excluding outliers 4 models were used: GJR-GARCH, EGARCH, DCC-GARCH and VCC-GARCH. The obtained results showed the following: asymmetric behavior of volatility spillover effects and long term relationships between markets appeared to be insignificant, all 4 models showed unidirectional volatility spillover effect from stock market to foreign exchange market, that leads to possible hedging strategies, VCC-GARCH model occurred to be the best fitting model according to AIC.

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