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Integration at a cost: Evidence from volatility impulse response functions

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Author Info
E.Panopoulou () (Department of Economics, Finance and Accounting, National University of Ireland Maynooth and Department of Banking and Financial Management, University of Piraeus, Greece)
T. Pantelidis (Department of Banking and Financial Management, University of Piraeus, Greece.)

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Abstract

We investigate the international information transmission between the U.S. and the rest of the G-7 countries using daily stock market return data covering the last 20 years. A pre-1995 and post- 1995 analysis reveals that the linkages between the markets have changed substantially in the more recent era, suggesting that national markets have become more interdependent. In the majority of the countries under scrutiny, we provide evidence of direct volatility spillovers, running mainly from the US and pointing to more rapid information transmission during the recent years. We further uncover the dynamics of the volatility spillovers between the international stock markets by means of a Volatility Impulse Response Analysis. Our findings, based on three historical shocks that have caused turbulence in the stock markets, suggest that the persistence of volatility shocks has increased substantially during the post-1995 period mainly due to increased persistence and interdependence in the volatility of all markets. As a result, volatility shocks in the international stock markets nowadays perpetuate for a significant longer period compared to the pre-1995 era.

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1540305.

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Length: 31 pages
Date of creation: Mar 2005
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Handle: RePEc:may:mayecw:n1540305

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Related research
Keywords: volatility spillovers; volatility impulse response functions; stock market; ARCH-BEKK;

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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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    Other versions:
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    Other versions:
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  13. Theodossiou, Panayiotis & Lee, Unro, 1993. "Mean and Volatility Spillovers across Major National Stock Markets: Further Empirical Evidence," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 16(4), pages 337-50, Winter.
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  15. HAFNER, Christian & HERWARTZ, Helmut, 2001. "Volatility impulse response functions for multivariate GARCH models," CORE Discussion Papers 2001039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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