FINANCIAL CONTAGION IN STOCK AND FOREX MARKET DURING EUROZONE DEBT CRISIS

Abstract

This study examined the financial contagion of Forex Market and Asian Emerging Equity Markets (AEEMs) at the time of Eurozone debt crisis. For examining the cross-market volatility spillovers, linkages and shocks propagation, we employed DCC-GARCH model on daily data of seven years, including tranquil and turmoil period. The findings exposed a significant dynamic correlation between foreign exchange and the Asian emerging equity markets. Stronger financial contagion of Asian emerging markets and foreign exchange markets with increased volatility transmission and co-movement across the markets was noted. It was observed that the markets were significantly affected by the Eurozone debt crisis. These findings offer significant insights for investors and policymakers, highlighting the importance of financial stability and portfolio diversification strategies in crises episodes. The close monitoring of both forex and stock markets is, therefore, highly important to lessen the risk elements in crises duration