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International market links and volatility transmission

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  • Corradi, Valentina
  • Distaso, Walter
  • Fernandes, Marcelo

Abstract

This paper gauges volatility transmission between stock markets by testing conditional independence of their volatility measures. In particular, we check whether the conditional density of the volatility changes if we further condition on the volatility of another market. We employ nonparametric methods to estimate the conditional densities and model-free realized measures of volatility, allowing for both microstructure noise and jumps. We establish the asymptotic normality of the test statistic as well as the first-order validity of the bootstrap analog. Finally, we uncover significant volatility spillovers between the stock markets in China, Japan, UK and US.

Suggested Citation

  • Corradi, Valentina & Distaso, Walter & Fernandes, Marcelo, 2012. "International market links and volatility transmission," Journal of Econometrics, Elsevier, vol. 170(1), pages 117-141.
    • Handle: RePEc:eee:econom:v:170:y:2012:i:1:p:117-141
    DOI: 10.1016/j.jeconom.2012.03.003
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    6. Cardona, Laura & Gutiérrez, Marcela & Agudelo, Diego A., 2017. "Volatility transmission between US and Latin American stock markets: Testing the decoupling hypothesis," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 115-127.
    7. Gonzalez-Perez, Maria T., 2015. "Model-free volatility indexes in the financial literature: A review," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 141-159.
    8. Aït-Sahalia, Yacine & Cacho-Diaz, Julio & Laeven, Roger J.A., 2015. "Modeling financial contagion using mutually exciting jump processes," Journal of Financial Economics, Elsevier, vol. 117(3), pages 585-606.
    9. Rim Ammar Lamouchi & Ruba Khalid Shira, 2023. "Heterogeneous Behavior and Volatility Transmission in the Forex Market using High-Frequency Data," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(3), pages 1-3.
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    12. Afees A. Salisu & Kazeem Isah, 2017. "Modeling the spillovers between stock market and money market in Nigeria," Working Papers 023, Centre for Econometric and Allied Research, University of Ibadan.
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    16. John Cotter & Mark Hallam & Kamil Yilmaz, 2017. "Mixed-Frequency Macro-Financial Spillovers," Koç University-TUSIAD Economic Research Forum Working Papers 1704, Koc University-TUSIAD Economic Research Forum.
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    More about this item

    Keywords

    Conditional independence; Jump-diffusion; Noncausality; Quadratic variation; Realized variance;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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