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Time-varying international stock market interaction and the identification of volatility signals

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  • Strohsal, Till
  • Weber, Enzo

Abstract

This paper investigates the dependency of international stock market interaction on financial volatility. We show in a stylized economic model that volatility-dependent cross-market spillovers can be interpreted in two different ways, as indicating information flow or uncertainty. If higher volatility in one market leads to higher (lower) reactions in another market, volatility reflects information (uncertainty). We apply a simultaneous time-varying coefficient model, where structural ARCH-type variances serve two purposes: governing the time variation of spillovers and ensuring statistical identification. We analyze data of US and further stock markets. Indeed, we find strong nonlinear, volatility-dependent spillovers.

Suggested Citation

  • Strohsal, Till & Weber, Enzo, 2015. "Time-varying international stock market interaction and the identification of volatility signals," Journal of Banking & Finance, Elsevier, vol. 56(C), pages 28-36.
  • Handle: RePEc:eee:jbfina:v:56:y:2015:i:c:p:28-36
    DOI: 10.1016/j.jbankfin.2015.01.020
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    Cited by:

    1. Lütkepohl, Helmut & Netšunajev, Aleksei, 2017. "Structural vector autoregressions with heteroskedasticity: A review of different volatility models," Econometrics and Statistics, Elsevier, vol. 1(C), pages 2-18.
    2. Holger Fink & Yulia Klimova & Claudia Czado & Jakob Stober, 2016. "Regime switching vine copula models for global equity and volatility indices," Papers 1604.05598, arXiv.org.
    3. repec:eee:finana:v:53:y:2017:i:c:p:94-111 is not listed on IDEAS
    4. Holger Fink & Yulia Klimova & Claudia Czado & Jakob Stöber, 2017. "Regime Switching Vine Copula Models for Global Equity and Volatility Indices," Econometrics, MDPI, Open Access Journal, vol. 5(1), pages 1-38, January.

    More about this item

    Keywords

    Information; Uncertainty; Spillover; Simultaneous equations; Identification;

    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; State Space Models

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