Co-Movements and Volatility Spillover in Asian Forex Market : A Multivariate GARCH and MRA Approach

This paper analyzes the co-movements and integration of some select Asian foreign exchange markets using both time series and time-frequency approaches. The correlation structure between forex markets, and the time domain information on varying correlations, is captured using the multivariate dynamic conditional correlation GARCH method whereas the time-horizon specific information on the dynamics of correlation is captured using methods from wavelet analysis. Results from time domain volatility models reveal significant volatility transmission between most of the countries. On the other hand, the use of time-scale methods from the wavelet domain, which makes it possible to detect the correlation dynamics in varying time horizons, reveals the existence of a strong correlation between all the seven markets with evidence of a nearly perfect integration of markets in the long run time horizon