Integration at a cost: Evidence from volatility impulse response functions
AbstractWe 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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Bibliographic InfoPaper 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.
Length: 31 pages
Date of creation: Mar 2005
Date of revision:
volatility spillovers; volatility impulse response functions; stock market; ARCH-BEKK;
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; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-29 (All new papers)
- NEP-ETS-2005-09-29 (Econometric Time Series)
- NEP-FIN-2005-09-29 (Finance)
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