GAMARE AKSHATA JALINDAR Dr. BALAJEE CHARI
Abstract:
Financial integration between emerging and developed economies has intensified the transmission of shocks across asset classes and international boundaries. Among these, the stock–currency nexus has become one of the most important areas of investigation in the context of global risk dynamics. The present study develops a framework to explore the asymmetric volatility spillover between the Indian and US stock–currency markets, focusing on how differently positive and negative shocks travel across the two economies. Advanced econometric models under the GARCH family, namely EGARCH and TGARCH, have been estimated in this study to capture nonlinear and asymmetric volatility patterns that traditional symmetric models cannot detect.This paper examines spillovers of volatility from one market to the other using daily data on key stock indices, namely the Nifty50 and S&P 500, and exchange rates INR–USD. The spillover of volatility across markets reflects significant bidirectional volatility transmission and thus a high degree of financial interdependence between the two markets. Evidence of greater impacts due to negative shocks than positive ones, through currency depreciation and decline in equity markets, supports the existence of leverage effects and asymmetries. The US market seems to be in a relatively stronger and more persistent position to spill over into Indian financial markets.These findings are of critical relevance from a practical perspective to investors, policymakers, and risk managers as they point to the need for monitoring foreign market conditions, especially in periods of economic turmoil. This can serve to enhance hedging strategies, the management of exchange-rate risk, and policy decisions related to financial stability. The study contributes to the growing literature on international linkages among markets and reiterates the importance of modeling asymmetric behavior in global financial systems.
