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Volatility Spillover Effect: A Semiparametric Analysis of Non-Cointegrated Process

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  • Yiguo Sun
  • Cheng Hsiao
  • Qi Li

Abstract

Stock market volatility is highly persistent and exhibits large fluctuations so that it is likely to be an integrated or a near integrated process. Stock markets' volatilities from different countries are intercorrelated, but are generally not cointegrated as many other (domestic) factors also affect volatility. In this paper, we use a semiparametric varying coefficient model to examine stock market volatility spillover effects. Using the estimation method proposed by Sun et al. (2011), we study the U.S./U.K. and U.S./Canadian stock market volatility spillover effects. We find striking similar patterns in both the U.S./U.K. and the U.S./Canadian markets. The stock market volatility spillover effects are strengthened when the currency markets experience high movement, and the spillover effects are asymmetric depending on whether a foreign currency is appreciating or depreciating.

Suggested Citation

  • Yiguo Sun & Cheng Hsiao & Qi Li, 2015. "Volatility Spillover Effect: A Semiparametric Analysis of Non-Cointegrated Process," Econometric Reviews, Taylor & Francis Journals, vol. 34(1-2), pages 127-145, February.
    • Handle: RePEc:taf:emetrv:v:34:y:2015:i:1-2:p:127-145
    DOI: 10.1080/07474938.2014.944793
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    Cited by:

    1. Kruse Robinson & Ventosa-Santaulària Daniel & Noriega Antonio E., 2017. "Changes in persistence, spurious regressions and the Fisher hypothesis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(3), pages 1-28, June.
    2. Chung Baek, 2020. "Risk Transmissions between Major Foreign Currencies: An Empirical Analysis from the U.S. Perspective," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(2), pages 151-168, September.

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