Exchange controls and the transmission of equity market volatility: the case of the UK

Patricia L. Chelley-Steeley

Research output: Contribution to journalArticle

Abstract

The paper investigates the impact that the relaxation of UK exchange controls in October 1979, had on the transmission of equity market volatility from the UK to other major equity markets. It is suggested that the existence of exchange controls in the UK was an important source of market segmentation which disturbed the transmission of shocks from one country to another, even when shocks contained global information. It is found that when a spillover GARCH(1,1) model is estimated for the five years before and after the removal of exchange controls, volatility shocks spill over from the UK to other markets much more strongly after the removal of exchange controls. This appears to suggest that volatility as well as returns have become more closely related since the UK removed exchange controls.
Original languageEnglish
Pages (from-to)317-322
Number of pages6
JournalApplied Financial Economics
Volume10
Issue number3
DOIs
Publication statusPublished - Jun 2000

Keywords

  • relaxation
  • UK
  • exchange controls
  • volatility
  • equity markets
  • market segmentation

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