Volatility transmitter or receiver? : investigating dynamic connectedness between the carry trade and financial markets
Nourhaine Nefzi, Abir Melki
By examining the connectedness of carry trade currency with stock, foreign exchange (forex), and commodity markets, the paper investigates the extent to which shocks in capital flows driven by interest-rate differentials affect financial markets. Following the framework of Diebold and Yilmaz (2012), we find that dynamic spillovers alternate between positive and negative, but, during the Covid-19 pandemic, the carry trade is the main net transmitter of volatility to all markets. Our findings confirm the ability of carry trade to increase financial vulnerability and amplify market turbulence, especially in the forex market.
Year of publication: |
2023
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Authors: | Nefzi, Nourhaine ; Melki, Abir |
Published in: |
Borsa Istanbul Review. - Amsterdam [u.a.] : Elsevier, ISSN 2214-8450, ZDB-ID 2745445-9. - Vol. 23.2023, 3, p. 748-758
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Subject: | Carry trade | Financial markets | Time-varying connectedness | Volatility spillovers | Volatilität | Volatility | Finanzmarkt | Financial market | Währungsspekulation | Currency speculation | Devisenmarkt | Foreign exchange market | Spillover-Effekt | Spillover effect | Welt | World | Kapitaleinkommen | Capital income | Wechselkurs | Exchange rate |
Saved in:
freely available
Type of publication: | Article |
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Type of publication (narrower categories): | Aufsatz in Zeitschrift ; Article in journal |
Language: | English |
Other identifiers: | 10.1016/j.bir.2023.01.007 [DOI] |
Classification: | C32 - Time-Series Models ; G15 - International Financial Markets |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014308844
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