Modeling Asymmetric Volatility Spillover between Exchange Rates and Stock Markets in Egypt: A Dynamic Conditional Correlation GARCH Approach

This study examines the asymmetric volatility transmission in addition to the dynamic correlation between the Egyptian Stock Market (EGX30) and the EGP/USD currency pair following the 2016 currency flotation. By utilizing the GJR-DCC-GARCH model on the daily information from 2012 to 2023, the authors are capable to reveal three main outcomes: (1) the leverage impacts are substantially strong in both markets, such that the negative shocks will cause a greater future volatility than the positive shocks of the same scale; (2) The 2016 currency float constituted a critical juncture that permanently elevated the level of integration of the market and the dynamic correlation was maximal during the times of systemic crises; (3) The stock market has turned into a net supplier of volatility for the foreign exchange market, with a net spillover of +3.7% post 2016 The outcomes of this study expose the risk amplification channel involved by the interaction of asymmetric volatility with dynamic correlation, which, in turn, would be a key consideration for financial stability policies in emerging markets experiencing structural reforms