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Better to Give than to Receive: Predictive Directional Measurement of Volatility Spillovers

Author

Listed:
  • Francis X. Diebold

    (University of Pennsylvania and NBER)

  • Kamil Yilmaz

    (Koc University)

Abstract

Using a generalized vector autoregressive framework in which forecast-error variance decompositions are invariant to variable ordering, we propose measures of both total and directional volatility spillovers. We use our methods to characterize daily volatility spillovers across U.S. stock, bond, foreign exchange and commodities markets, from January 1999 through September 2009. We show that despite significant volatility fluctuations in all four markets during the sample, cross-market volatility spillovers were quite limited until the global financial crisis that began in 2007. As the crisis intensified so too did the volatility spillovers, with particularly important spillovers from the bond market to other markets taking place after the collapse of Lehman Brothers in September 2008.

Suggested Citation

  • Francis X. Diebold & Kamil Yilmaz, 2010. "Better to Give than to Receive: Predictive Directional Measurement of Volatility Spillovers," Koç University-TUSIAD Economic Research Forum Working Papers 1001, Koc University-TUSIAD Economic Research Forum, revised Mar 2010.
    • Handle: RePEc:koc:wpaper:1001
    as

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    References listed on IDEAS

    as
    1. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
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    More about this item

    Keywords

    Asset Market; Asset Return; Stock Market; Market Linkage; Financial Crisis; Contagion; Vector Autoregression; Variance Decomposition;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • F3 - International Economics - - International Finance

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