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International market links and volatility transmission

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  • Corradi, Valentina
  • Distaso, Walter
  • Fernandes, Marcelo
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    Abstract

    This paper gauges volatility transmission between stock markets by testing conditional independence of their volatility measures. In particular, we check whether the conditional density of the volatility changes if we further condition on the volatility of another market. We employ nonparametric methods to estimate the conditional densities and model-free realized measures of volatility, allowing for both microstructure noise and jumps. We establish the asymptotic normality of the test statistic as well as the first-order validity of the bootstrap analog. Finally, we uncover significant volatility spillovers between the stock markets in China, Japan, UK and US.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304407612000759
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Econometrics.

    Volume (Year): 170 (2012)
    Issue (Month): 1 ()
    Pages: 117-141

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    Handle: RePEc:eee:econom:v:170:y:2012:i:1:p:117-141

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

    Related research

    Keywords: Conditional independence; Jump-diffusion; Noncausality; Quadratic variation; Realized variance;

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    References

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