Stock and currency market linkages: New evidence from realized spillovers in higher moments

Highlight
- We assess financial market linkages using high frequency data in a global context.
- We examine the linkages via three higher moments: volatility, skewness and kurtosis.
- Same-assets markets are positively linked via all three higher moments.
- Cross-assets linkages via the 3rd moment are negative, but positive in other cases.
- Cross-assets linkages are weaker than same-assets linkages in developed regions.

We examine the linkages both within and between stock and foreign exchange (FX) markets via three higher moments of return distributions (volatility, skewness and kurtosis). We find that FX market linkages (in the 2nd and 4th moments) are relatively more prominent in developed markets. Cross-asset markets in emerging countries are more likely to be negatively linked through the 3rd moment but they are positively associated via the 2nd and 4th moments in developed markets indicating common concerns regarding tail risks in the former. Finally, cross-asset market linkages are of a similar magnitude to intra-asset-market linkages within emerging markets but the latter are stronger in developed markets.