Onshore and offshore market for Indian Rupee: recent evidence on volatility and shock spillover

Behera, Harendra (2010): Onshore and offshore market for Indian Rupee: recent evidence on volatility and shock spillover.

Abstract

The paper empirically examines the onshore-offshore linkages of the Indian rupee using recently developed multivariate GARCH techniques. The empirical results show that offshore non deliverable forward (NDF) market does not have mean spillover impact on onshore spot, forward and futures market while shocks and volatilities in NDF market influence the onshore markets. The magnitude of volatility spillover from NDF to spot market, which was lower earlier, became higher after the introduction of currency futures in India. This is probably due to the fact that large arbitrage had taken place between futures and NDF market in recent past. Hence, the study suggests the close monitoring of both the onshore and offshore markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: Non deliverable forward, volatility spillover, multivariate GARCH
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing

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