RETURN AND VOLATILITY SPILLOVERS AMONG EMERGING ASIAN CURRENCY MARKETS ALONG BELT AND ROAD INITIATIVE DURING COVID-19 PANDEMIC

Abstract

This study investigated the dynamics of return and volatility spillovers among emerging Asian Currencies associated with countries along the Chinese Belt and Road Initiative during Covid-19 Pandemic. Connectedness Index introduced by Diebold and Yilmaz (2012) based on Generalized Forecast Error Variance Decomposition was used for analyzing daily exchange rate data from December 2019 till June 2021 of the respective countries. Findings of the study revealed that volatility spillovers remain consistently higher than return spillovers, which is an indication of stronger financial risk transmission across currency markets. Sharpe increase in both the spillovers during the pandemic period reflects significant contagion effect. Our results are important for investors in order to make portfolio diversification strategies and policy makers to formulate policies for financial stability during global and regional shocks.