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Bayesian SAR Model with Stochastic Volatility and Multiple Time-Varying Weights

Author

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  • Michele Costola
  • Matteo Iacopini
  • Casper Wichers

Abstract

A novel spatial autoregressive model with time-varying structural variance for panels of time series data is introduced. It incorporates multilayer networks and accounts for dynamic relationships, thus enabling the analysis of shock propagation through time-varying spillover effects. The proposed method outperforms alternative spatial model benchmarks in an empirical application investigating the impact of cooperative and conflictual geopolitical relationships on G7 stock markets. The results indicate that cooperative interactions have a greater influence on stock markets than conflictual ones, highlighting the collaborative nature of the G7. They also reveal heterogeneous network exposures and distinct patterns of direct and indirect spillover effects.

Suggested Citation

  • Michele Costola & Matteo Iacopini & Casper Wichers, 2025. "Bayesian SAR Model with Stochastic Volatility and Multiple Time-Varying Weights," Journal of Financial Econometrics, Oxford University Press, vol. 23(3), pages 273-335.
    • Handle: RePEc:oup:jfinec:v:23:y:2025:i:3:p:273-335.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbae035
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    More about this item

    Keywords

    Bayesian inference; international relationships; multilayer networks; spatial autoregressive model; time-varying networks; stochastic volatility;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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