Volatility Spillovers and the Risk-Return Relation Between Stock and Foreign Exchange Markets in Brazil |
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Authors: | Regis Augusto Ely |
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Institution: | 1. Department of Economics, Federal University of Pelotas, Brazilregis.ely@ufpel.edu.br |
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Abstract: | We examine the evidence of mean and volatility spillovers between stock and foreign exchange markets in Brazil with multivariate GARCH models and nonlinear Granger causality tests. We also use a multivariate GARCH-in-mean model to assess the relationship between risk and return in these markets. The results indicate that the stock market leads the foreign exchange market in price formation and that nonlinear Granger causalities from the exchange market to the stock market do occur. Part of these nonlinear causalities are explained by volatility spillovers. We show that exchange rate volatility affects not only stock market volatility but also stock returns. |
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Keywords: | Brazil foreign exchange market nonlinear causality spillovers stock market |
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