Exchange rate spillover effect on Stock Returns: Evidence from Pakistan

Volatility spillover is measured as the transferal of variability among different financial markets. The objective of this study is to see if there is any effect volatility spillover amongexchange rates and stock returns in Pakistan or not. For this purpose the secondary dataranging from April 2010 – April 2020 is collected and analyzed using multivariate dynamic conditional correlation GARCH (DCC-MGARCH) model. It is observed that there is a notable volatility spillover impact between the two. This study can be used by different investing firms and individual investors incorporating the spillover impact in order to hedge and diversify their portfolios. It can also be used by educational institutions for teaching and training purposes. It can also help the policy makers providing recommendations regarding spillover effect between the concerned markets.