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Measuring financial asset return and volatilty spillovers, with application to global equity markets

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  • Diebold, Francis X.
  • Yilmaz, Kamil

Abstract

We provide a simple and intuitive measure of interdependence of asset returns and/or volatilities. In particular, we formulate and examine precise and separate measures of return spillovers and volatility spillovers. Our framework facilitates study of both non-crisis and crisis episodes, including trends and bursts in spillovers, and both turn out to be empirically important. In particular, in an analysis of nineteen global equity markets from the early 1990s to the present, we find striking evidence of divergent behavior in the dynamics of return spillovers vs. volatility spillovers: Return spillovers display a gently increasing trend but no bursts, whereas volatility spillovers display no trend but clear bursts.

Suggested Citation

  • Diebold, Francis X. & Yilmaz, Kamil, 2008. "Measuring financial asset return and volatilty spillovers, with application to global equity markets," CFS Working Paper Series 2008/26, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:200826
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    References listed on IDEAS

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    1. Faust, Jon, 1998. "The robustness of identified VAR conclusions about money," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 207-244, December.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Contagion; Herd Behavior; Variance Decomposition; Vector Autoregression;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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