Volatility spillovers and the role of leading financial centres
This paper investigates volatility spillovers between eleven equity markets located in Europe, Asia, Latin America and the US from July 1992 to July 1999. The absolute value of stock returns is adopted as volatility index. The VAR methodology--duly adjusted in order to account for differences in ma...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Associazione Economia civile
2012-04-01
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| Series: | PSL Quarterly Review |
| Subjects: | |
| Online Access: | https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/9928 |
| Summary: | This paper investigates volatility spillovers between eleven equity markets located in Europe, Asia, Latin America and the US from July 1992 to July 1999. The absolute value of stock returns is adopted as volatility index. The VAR methodology--duly adjusted in order to account for differences in market trading times--is used to examine volatility dependencies across the Asian crisis and to simulate the way local volatilityresponds to a shock in another market using impulse response and variance decomposition analyses. These techniques are implemented on VAR residuals previously filtered with GARCH(1,1) models, as the inference requires normal iid residuals. The evidence suggests that the US market plays a crucial role in transferring news, and arole that varies over time, growing in Asia and declining in Europe. Moreover, there is evidence of discernible differences in the pattern of volatility transmission during the crisis as the dimension and number of volatility spillovers increases--a clear symptom of contagion across markets.
JEL Codes: G15, G12, O16
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| ISSN: | 2037-3635 2037-3643 |