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Volatility contagion: A range-based volatility approach

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  • Chiang, Min-Hsien
  • Wang, Li-Min
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    Abstract

    This article proposes a new approach to evaluate volatility contagion in financial markets. A time-varying logarithmic conditional autoregressive range model with the lognormal distribution (TVLCARR) is proposed to capture the possible smooth transition in the range process. Additionally, a smooth transition copula function is employed to detect the volatility contagion between financial markets. The approach proposed is applied to the stock markets of the G7 countries to investigate the volatility contagion due to the subprime mortgage crisis. Empirical evidence shows that volatility is contagious from the US market to several markets examined.

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    File URL: http://www.sciencedirect.com/science/article/pii/S030440761100145X
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Econometrics.

    Volume (Year): 165 (2011)
    Issue (Month): 2 ()
    Pages: 175-189

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    Handle: RePEc:eee:econom:v:165:y:2011:i:2:p:175-189

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    Web page: http://www.elsevier.com/locate/jeconom

    Related research

    Keywords: LCARR; Price range; Smooth transition copula; Subprime mortgage crisis; TVLCARR; Volatility contagion;

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    Cited by:
    1. Grosche, Stephanie & Heckelei, Thomas, 2014. "Directional Volatility Spillovers between Agricultural, Crude Oil, Real Estate and other Financial Markets," Discussion Papers 166079, University of Bonn, Institute for Food and Resource Economics.
    2. Golosnoy, Vasyl & Gribisch, Bastian & Liesenfeld, Roman, 2012. "Intra-daily volatility spillovers between the US and German stock markets," Economics Working Papers 2012-06, Christian-Albrechts-University of Kiel, Department of Economics.
    3. repec:wyi:journl:002202 is not listed on IDEAS
    4. Joshua C.C. Chan & Cody Yu-Ling Hsiao & Renée A. Fry-McKibbin, 2013. "A Regime Switching Skew-normal Model for Measuring Financial Crisis and Contagion," CAMA Working Papers 2013-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    5. Reboredo, Juan C., 2014. "Volatility spillovers between the oil market and the European Union carbon emission market," Economic Modelling, Elsevier, vol. 36(C), pages 229-234.
    6. Zheng, Tingguo & Zuo, Haomiao, 2013. "Reexamining the time-varying volatility spillover effects: A Markov switching causality approach," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 643-662.

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