Abstract

LOPEZ VILLA, Jorge  and  SOSA CASTRO, Miriam. Volatility Contagion between Stock Market and Exchange Rate in Mexico and Brazil (2000-2020). Rev. mex. econ. finanz [online]. 2021, vol.16, n.spe, e701.  Epub Sep 05, 2022. ISSN 2448-6795.  https://doi.org/10.21919/remef.v16i0.701.

This paper analyzes volatility contagion between exchange and stock market in Mexico and Brazil during the period January/2000- November/2020. The methodology includes univariate GARCH models under t-Student distribution: GARCH, APARCH, EGARCH and TARCH to examine the conditional volatility in each series and multivariate GARCH: DCC and ADCC to investigate volatility co-movements between exchange rate and stock market. A contagion effect is confirmed, at least during one period, for each economy. Findings suggest that, investors should apply exchange rate hedges during uncertainty periods or hold positions until the markets recover. Among the limitations, only two markets are covered, excluding the regional analysis. Originality relies on the empirical proposal, the emergent economies, scarcely analyzed, which are investigated and the value of the results in terms of diversification and hedging strategies.

Keywords : Foreign Exchange Volatility; Stock Market Volatility; Volatility Contagion; Mexico; Brazil; DCC-GARCH.

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