Dynamic Volatility Transmissions among Emerging Asian Foreign Exchange Markets along the Belt and Road Initiative: A Connectedness Approach

Abstract

This study investigates the dynamics of volatility spillovers among 10 emerging Asian foreign exchange markets along the Belt and Road Initiative. Daily realized volatility data from May 2005 to December 2023 are analyzed through Spillover Index Method based on Forecast Error Variance Decomposition introduced by Diebold and Yilmaz (2012). The study measures Total, Directional, Net and Pairwise Spillovers and also explores the time-varying behavior through Rolling Window Analysis. Results reveal a moderate to high level of interdependence across considered markets where approximately half of the each country’s volatility is due to cross market spillovers. Turkish, Indonesian and Thailand currencies emerged as net volatility contributors while Sri Lankan, Malaysian and Pakistani Currencies as net receivers. The dynamic analysis shows that volatility spillovers across the sample are time-varying and sensitive to regional integration and global crises. The findings have important implications for investors, policy makers and future researchers.