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

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  • FrancisX. Diebold
  • Kamil Yilmaz

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; both turn out to be empirically important. In particular, in an analysis of 19 global equity markets from the early 1990s to the present, we find striking evidence of divergent behaviour 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. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Suggested Citation

  • FrancisX. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
  • Handle: RePEc:ecj:econjl:v:119:y:2009:i:534:p:158-171
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    References listed on IDEAS

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    1. Faust, Jon, 1998. "The robustness of identified VAR conclusions about money," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 207-244, December.
    2. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
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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, June.
    6. 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.
    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.).
    8. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-933, July.
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    Replication

    This item has been replicated by:
  • Stefan Klößner & Sven Wagner, 2014. "Exploring All Var Orderings For Calculating Spillovers? Yes, We Can!—A Note On Diebold And Yilmaz (2009)," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(1), pages 172-179, January.
  • More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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