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Financial market spillovers around the globe

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  • Thomas Dimpfl
  • Robert C. Jung
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    Abstract

    This article investigates the transmission of return and volatility spillovers around the globe. It draws on index futures of three representative indices, namely the Dow Jones Euro Stoxx 50, the S&P 500 and the Nikkei 225. Devolatized returns and realized volatilities are modelled separately using a Structural Vector Autoregressive (SVAR) model, thereby accounting for the particular sequential time structure of the trading venues. Within this framework, we test hypotheses in the spirit of Granger causality tests, investigate the short-run dynamics in the three markets using Impulse Response (IR) functions, and identify leadership effects through variance decomposition. Our key results are as follows. We find weak and short-lived return spillovers, in particular from the USA to Japan. Volatility spillovers are more pronounced and persistent. The information from the home market is most important for both returns and volatilities; the contribution from foreign markets is less pronounced in the case of returns than in the case of volatility. Possible gains in terms of forecasting precision when applying our modelling strategy are illustrated by a forecast evaluation.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 22 (2012)
    Issue (Month): 1 (January)
    Pages: 45-57

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    Handle: RePEc:taf:apfiec:v:22:y:2012:i:1:p:45-57

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    Web page: http://www.tandfonline.com/RAFE20

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    1. Francis X. Diebold & Kamil Yilmaz, 2007. "Measuring Financial Asset Return and Volatility Spillovers, With Application to Global Equity Markets," PIER Working Paper Archive 07-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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    Cited by:
    1. Jozef Barunik & Evzen Kocenda & Lukas Vacha, 2014. "How does bad and good volatility spill over across petroleum markets?," Papers 1405.2445, arXiv.org.
    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.

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