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Measuring Financial Asset Return and Volatility Spillovers, With Application to Global Equity Markets

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Author Info
Francis X. Diebold () (University of Pennsylvania and NBER)
Kamil Yılmaz (Department of Economics, Koç University)

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Abstract

We provide a simple and intuitive measure of interdependence of asset returns and/or volatilities. In particular, we formulate and examine precise and separate measures of return spillovers and volatility spillovers. Our framework facilitates study of both non-crisis and crisis episodes, including trends and bursts in spillovers, and both turn out to be empirically important. In particular, in an analysis of sixteen global equity markets from the early 1990s to the present, we find striking evidence of divergent behavior in the dynamics of return spillovers vs. volatility spillovers: Return spillovers display a gently increasing trend but no bursts, whereas volatility spillovers display no trend but clear bursts.

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Publisher Info
Paper provided by TÜSİAD-Koç University Economic Research Forum in its series TÜSİAD-Koç University Economic Research Forum Working Papers with number 0705.

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Length: 15 pages
Date of creation: Jan 2007
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Handle: RePEc:koc:wpaper:0705

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Postal: College of Administrative Sciences and Economics, Koç, University, İstinye, 80860 İstanbul
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Related research
Keywords: Asset Market Asset Return Stock Market Emerging Market Market Linkage Financial Crisis Herd Behavior Contagion

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Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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References listed on IDEAS
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  1. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-33, July. [Downloadable!] (restricted)
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  2. Faust, Jon, 1998. "The robustness of identified VAR conclusions about money," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49, pages 207-244, December. [Downloadable!] (restricted)
  3. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October. [Downloadable!] (restricted)
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  4. Engle, Robert F & Ito, Takatoshi & Lin, Wen-Ling, 1990. "Meteor Showers or Heat Waves? Heteroskedastic Intra-daily Volatility in the Foreign Exchange Market," Econometrica, Econometric Society, vol. 58(3), pages 525-42, May. [Downloadable!] (restricted)
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  5. Sassan Alizadeh & Michael W. Brandt & Francis X. Diebold, 2002. "Range-Based Estimation of Stochastic Volatility Models," Journal of Finance, American Finance Association, vol. 57(3), pages 1047-1091, 06. [Downloadable!] (restricted)
  6. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January. [Downloadable!] (restricted)
  7. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  8. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January. [Downloadable!] (restricted)
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