Stock and foreign exchange market linkages in emerging economies

This paper investigates bi-directional linkages between the stock and foreign exchange markets of a number of emerging economies. This is accomplished by estimating a vector autoregressive model with Generalized Autoregressive Conditional Heteroskedasticity (VAR-GARCH) for each of twelve emerging economies. Included in model dynamics are the effects of global and regional stock markets on the stock and foreign exchange markets. We find significant bidirectional spillovers between stock and foreign exchange markets. Moreover, we investigate whether a country's choice of exchange rate regime or the Asian financial crisis had a significant effect on the volatility spillover mechanism. (C) 2013 Elsevier B.V. All rights reserved.