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Volatility spillovers and the role of leading financial centres

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  • Giulio Cifarelli

    () (Universitˆ degli Studi di Brescia, Dipartimento di Economia, Brescia)

  • Giovanna Paladino

    () (San Paolo IMI Spa, Studi e Ricerche Economiche, and Luiss, Dipartimento di Economia, Roma)

Abstract

This paper investigates volatility spillovers between eleven equity markets located in Europe, Asia, Latin America and the US from July 1992 to July 1999. The absolute value of stock returns is adopted as volatility index. The VAR methodology--duly adjusted in order to account for differences in market trading times--is used to examinevolatility dependencies across the Asian crisis and to simulate the way local volatilityresponds to a shock in another market using impulse response and variance decomposition analyses. These techniques are implemented on VAR residuals previously filtered with GARCH(1,1) models, as the inference requires normal iid residuals. The evidence suggests that the US market plays a crucial role in transferring news, and arole that varies over time, growing in Asia and declining in Europe. Moreover, there is evidence of discernible differences in the pattern of volatility transmission during the crisis as the dimension and number of volatility spillovers increases--a clear symptom of contagion across markets.

Suggested Citation

  • Giulio Cifarelli & Giovanna Paladino, 2001. "Volatility spillovers and the role of leading financial centres," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 54(216), pages 37-71.
  • Handle: RePEc:psl:bnlaqr:2001:12
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock Returns; Stocks;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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