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Better to give than to receive: Predictive directional measurement of volatility spillovers

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  • Diebold, Francis X.
  • Yilmaz, Kamil

Abstract

Using a generalized vector autoregressive framework in which forecast-error variance decompositions are invariant to the variable ordering, we propose measures of both the total and directional volatility spillovers. We use our methods to characterize daily volatility spillovers across US stock, bond, foreign exchange and commodities markets, from January 1999 to January 2010. We show that despite significant volatility fluctuations in all four markets during the sample, cross-market volatility spillovers were quite limited until the global financial crisis, which began in 2007. As the crisis intensified, so too did the volatility spillovers, with particularly important spillovers from the stock market to other markets taking place after the collapse of the Lehman Brothers in September 2008.

Suggested Citation

  • Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
  • Handle: RePEc:eee:intfor:v:28:y:2012:i:1:p:57-66
    DOI: 10.1016/j.ijforecast.2011.02.006
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset market; Asset return; Stock market; Market linkage; Financial crisis; Contagion; Vector autoregression; Variance decomposition;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • F3 - International Economics - - International Finance

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