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This paper investigates the nature of volatility spillovers between stock returns and exchange rate changes for Italy, Spain and Portugal for the 1996-1998 period prior to the introduction of the Euro as well as the 1999-2001 and 1992-2006 periods since the Euro has been introduced. We use an EGARCH model which takes into account whether bad news has the same impact on volatility as good news. We also investigate whether volatility spillovers between exchange rates and equity markets is stronger for some currencies than others. We find that there were no significant volatility spillovers from stock returns to exchange rates prior to the introduction of the Euro in all countries. However, since the introduction of the Euro, there were significant volatility spillovers from stock returns to exchange rates in all countries for all currencies, with the exception of Portugal in the more recent 2002-2006 period. The introduction of the Euro appears to have had little impact on the nature of volatility spillovers from exchange rates to stock returns which were generally insignificant prior to the introduction of the Euro as well as for the 1999-2006 period.
Morales, Lucia, "Volatility spillovers between exchange rates and equity markets: evidence from Spain, Portugal and Italy" (2007). Conference papers. Paper 6.