The Volatility Spillover between the Stock Market and the Foreign Exchange Market. Insights from Pakistan

Abstract

My study investigated that the Volatility excess amongst the stock market as well as the foreign exchange market in Pakistan. The instability or degree of variation of trade price series over time, as measured by standard deviation, is referred to as volatility. The volatility of the foreign currency market as well as the volatility of stock market returns has a strong link. This study is based on yearly data from 1980 to 2020. The selected variables are Gross Domestic Product, Money Supply, Investment, Exchange rate, Price index, and Inflation. The ADF unit root test and ARDL technique were applied to the time-series data. ADF test is used to discover the stationary of variables and ARDL is used to define the estimation of variables. According to this research, the stock market and the foreign currency market are interlinked. In the long run, the consumer price index, exchange rate, and money supply are all significant, but they are all negatively related to GDP. However, in the long run, investment and savings are positively associated, and the price index is insignificant, with a negative relationship to GDP.