Contagion across exchange rates: New evidence on the role of information spillovers and eight major exchange rates
Abstract
Purpose
The purpose of this paper is to investigate contagion across eight major exchange rates by providing more information on the role of information spillovers.
Design/methodology/approach
The empirical analysis makes use of two methodologies that capture channels of contagion. Such methodologies explicitly consider information spillovers characterized by the response of currency markets to real-time macroeconomic surprises, i.e., divergences between expectations and realizations.
Findings
The empirical findings denote the presence of contagion effects, originating from information spillovers.
Practical implications
The empirical findings provide insight about how to derive appropriate policy responses, which are crucial for policymakers to understand the source and nature of such exposures, while this insight might have some bearing with respect to the choice of an exchange-rate regime. The results from this paper may also have implications for investors in relevance to portfolio re-balancing and the construction of optimal portfolio diversification strategies.
Originality/value
This is the first empirical attempt that explores the role of informational spillovers in exchange rate markets and also explores the employment of advanced econometric methodologies to satisfy the above research goal.
Keywords
Acknowledgements
The authors wish to thank Jonathan Batten and Robert Durand for their valuable comments and suggestions on an earlier draft of this paper. The authors express gratitude to participants in economic workshops at Curtin University, Northumbria University and University of Piraeus for their suggestions for improving the quality of the paper. Last, but not least, the authors thank the editor of this journal for giving them the chance to revise their work. Needless to say, the usual disclaimer applies.
Citation
Apergis, N. and Christou, C. (2017), "Contagion across exchange rates: New evidence on the role of information spillovers and eight major exchange rates", Journal of Economic Studies, Vol. 44 No. 1, pp. 24-35. https://doi.org/10.1108/JES-12-2015-0216
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited