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Volatility Spillovers across South African Asset Classes during Domestic and Foreign

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  • Andrew S. Duncan
  • Alain Kabundi

Abstract

This paper studies domestic volatility transmission in an emerging economy. Daily volatility spillover indices, relating to South African (SA) currencies, bonds and equities, are estimated using variance decompositions from a generalised vector autoregressive (GVAR) model (Pesaran and Shin 1998). The results suggest substantial time-variation in volatility linkages between October 1996 and June 2010. Typically, large increases in volatility spillovers coincide with domestic and foreign financial crises. Equities are the most important source of volatility spillovers to other asset classes. However, following the 2001 currency crisis, and up until mid-2006, currencies temporarily dominate volatility transmission. Bonds are a consistent net receiver of volatility spillovers. In comparison to similar research focussing on the United States (Diebold and Yilmaz 2010), volatility linkages between SA asset classes are relatively strong.

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Bibliographic Info

Paper provided by Economic Research Southern Africa in its series Working Papers with number 202.

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Length: 32 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:rza:wpaper:202

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Related research

Keywords: Asset Market Linkages; Dynamic Correlation; Financial Crisis; Generlised Vector Autoregression; Variance Decomposition; Volatility Spillover.;

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References

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Cited by:
  1. Nico Katzke, 2013. "South African Sector Return Correlations: using DCC and ADCC Multivariate GARCH techniques to uncover the underlying dynamics," Working Papers 17/2013, Stellenbosch University, Department of Economics.
  2. Andrew Stuart Duncan & Alain Kabundi, 2011. "Global Financial Crises and Time-varying Volatility Comovement in World Equity Markets," Working Papers 253, Economic Research Southern Africa.

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