Intra-Week and Inter-Market Volatility Spillover in Kenya's Financial Markets

Abstract

Using weekly data, we document asymmetry in return and volatility spillover in Kenya’s equity and currency market weekly returns during the period January 2000-April 2017 using an exponential GARCH modeling approach. Our findings suggest that that albeit the depreciation of the exchange rate, its volatility is two times less volatility than the stock market with the equity returns innovations being significant and positive and except during the crisis period while currency returns innovations are insignificant and positive except during the pre-crisis period. Secondly, we fail to find evidence for equity market intra-week volatility spillover except for pre-crisis period. On the contrary, currency market inter-week volatility spillover exists for the full period and the pre-crisis sample period but not for the crisis and post-crisis period. Lastly, our results reveal existence of volatility spillover from the equity to the currency market except for crisis period and volatility spillover from the currency to the equity market in the pre-crisis period and not in the other periods, which reinforces the importance of closely monitoring the evolution of financial markets. These findings have important policy implications for portfolio managers in enhancing their informational efficacy and efficiency in order to predict financial market interdependence.