This study examines the relationship between external shocks and the micro-transmission aspects of volatility persistence and market efficiency in Malawi's foreign exchange market. Using GARCH-type models on monthly data from June 2011 to October 2021, the study finds evidence of structural breaks in volatility and return series, coinciding with the Russia-Ukraine war. Negative shocks significantly increase volatility persistence, asymmetry, and threshold effects. While domestic factors also influence volatility, external influences remain significant, particularly for negative shocks, supporting leverage and volatility feedback effects. FRUH analysis reveals weak-form inefficiency in the foreign exchange market.

Joseph Paul Chunga, Ping YU