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A comparison of Spillover Effects before, during and after the 2008 Financial Crisis

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  • Alethea Rea
  • William Rea

    ()
    (University of Canterbury)

  • Marco Reale
  • Carl Scarrott

Abstract

This paper applies graphical modelling to the S&P 500, Nikkei 225 and FTSE 100 stock market indices to trace the spillover of returns and volatility between these three major world stock market indices before, during and after the 2008 financial crisis. We find that the depth of market integration changed significantly between the pre-crisis period and the crisis and post- crisis period. Graphical models of both return and volatility spillovers are presented for each period. We conclude that graphical models are a useful tool in the analysis of multivariate time series where tracing the flow of causality is important.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1203.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 12/03.

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Length: 26 pages
Date of creation: 07 Feb 2012
Date of revision:
Handle: RePEc:cbt:econwp:12/03

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Keywords: Volatility spillover; graphical modelling; financial crisis; causality;

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  1. Martens, Martin & Poon, Ser-Huang, 2001. "Returns synchronization and daily correlation dynamics between international stock markets," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1805-1827, October.
  2. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  3. Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996. "Fractionally integrated generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 74(1), pages 3-30, September.
  4. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
  5. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  6. Christos Savva & Denise R Osborn & Len Gill, 2005. "Volatility, spillover Effects and Correlations in US and Major European Markets," Money Macro and Finance (MMF) Research Group Conference 2005 23, Money Macro and Finance Research Group.
  7. Bray, Margaret, 1985. "Rational Expectations, Information and Asset Markets: An Introduction," Oxford Economic Papers, Oxford University Press, vol. 37(2), pages 161-95, June.
  8. Marco Reale, 2002. "The sampling properties of conditional independence graphs for structural vector autoregressions," Biometrika, Biometrika Trust, vol. 89(2), pages 457-461, June.
  9. Kang, Sang Hoon & Cheong, Chongcheul & Yoon, Seong-Min, 2011. "Structural changes and volatility transmission in crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4317-4324.
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