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Volatility transmission and financial crises

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  • Guglielmo Caporale

  • Nikitas Pittis
  • Nicola Spagnolo

Abstract

In this paper we examine the international transmission of the 1997 South East Asia financial crisis. We estimate a bivariate GARCH-BEKK model, and carry out LR tests for causality-in-variance with bootstrapped critical values. Three pairwise models are estimated for US, European, Japanese and South East Asian daily stock market returns. Volatility spillovers are found in all cases. The dynamics of the conditional volatilities differ, but causality links in the variance are found to be strong and bidirectional in normal periods, and unidirectional (from the markets in turmoil to the others) following the onset of the crisis, consistently with crisiscontingent models. Copyright Academy of Economics and Finance 2006

Suggested Citation

  • Guglielmo Caporale & Nikitas Pittis & Nicola Spagnolo, 2006. "Volatility transmission and financial crises," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 30(3), pages 376-390, September.
    • Handle: RePEc:spr:jecfin:v:30:y:2006:i:3:p:376-390
    DOI: 10.1007/BF02752742
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    References listed on IDEAS

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