Publication: Volatility Spillover and Multivariate Volatility Impulse Response Analysis of GFC News Events
Loading...
Files
Official URL
Full text at PDC
Publication Date
2016-10
Advisors (or tutors)
Editors
Journal Title
Journal ISSN
Volume Title
Publisher
Citations
Exportar
Abstract
This paper applies two measures to assess spillovers across markets: the Diebold Yilmaz (2012) Spillover Index and the Hafner and Herwartz (2006) analysis of multivariate GARCH models using volatility impulse response analysis. We use two sets of data, daily realized volatility estimates taken from the Oxford Man RV library, running from the beginning of 2000 to October 2016, for the S&P500 and the FTSE, plus ten years of daily returns series for the New York Stock Exchange Index and the FTSE 100 index, from 3 January 2005 to 31 January 2015. Both data sets capture both the Global Financial Crisis (GFC) and the subsequent European Sovereign Debt Crisis (ESDC). The spillover index captures the transmission of volatility to and from markets, plus net spillovers. The key difference between the measures is that the spillover index captures an average of spillovers over a period, whilst volatility impulse responses (VIRF) have to be calibrated to conditional volatility estimated at a particular point in time. The VIRF provide information about the impact of independent shocks on volatility. In the latter analysis, we explore the impact of three different shocks, the onset of the GFC, which we date as 9 August 2007 (GFC1). It took a year for the financial crisis to come to a head, but it did so on 15 September 2008, (GFC2). The third shock is 9 May 2010. Our modelling includes leverage and asymmetric effects undertaken in the context of a multivariate GARCH model, which are then analysed using both BEKK and diagonal BEKK (DBEKK) models. A key result is that the impact of negative shocks is larger, in terms of the effects on variances and covariances, but shorter in duration, in this case a difference between three and six months.
Description
UCM subjects
Unesco subjects
Keywords
Citation
Alter, A., and A. Beyer, (2013) The Dynamics of Spillover Effects during the European Sovereign Debt Turmoil, European Central Bank Working Paper Series, No. 1558.
Baba, Y., R.F. Engle, D. Kraft and K.F. Kroner (1985), Multivariate simultaneous generalized ARCH, Unpublished manuscript, Department of Economics, University of California, San Diego, CA, USA.
Black, F. (1976), Studies of stock market volatility changes, in Proceedings of the American Statistical Association, Business and Economic Statistics Section, Washington, DC, USA, 1976, pp. 177-181.
Chang, C.-L. Y.-Y. Li and M. McAleer (2015), Volatility spillovers between energy and agricultural markets: A critical appraisal of theory and practice, Econometric Institute Research Paper EI2015-18, Erasmus School of Economics, Erasmus University Rotterdam.
Comte, F. and O. Lieberman (2003), Asymptotic theory for multivariate GARCH processes, Journal of Multivariate Analysis, 84, 61-84.
Diebold, F.X. and K. Yilmaz, (2009), Measuring Financial Asset Return and Volatility
Spillovers, With Application to Global Equity Markets, Economic Journal, 119,
158-171.
Diebold, F.X. and K. Yilmaz, (2012), Better to give than to receive: Predictive directional measurement of volatility spillovers, International Journal of Forecasting, 28(1), 57-66.
Diebold, F.X. and K. Yilmaz, (2014), On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms, Journal of Econometrics, 182, 119-134.
Diebold, F.X. and K. Yilmaz, (2016), Trans-Atlantic Equity Volatility Connectedness: U.S. and European Financial Institutions, 2004-2014, Journal of Financial Econometrics, 14, 81-127.
Engle, R.F. and V.K. Ng (1993), Measuring and testing the impact of news on volatility, Journal of Finance, 48, 1749-1778
Engle, R.F. and K.F. Kroner (1995), Multivariate simultaneous generalized ARCH, Econometric Theory, 11, 122-150.
Engle, Robert F., Takatoshi Ito and Wen-Ling Lin (1990), Meteor Showers or Heat Waves?
Heteroskedastic Intra-Daily Volatility in the Foreign Exchange Market, Econometrica,
58, 525-542.
Drost, F. and T. Nijman (1993), Temporal aggregation of GARCH processes, Econometrica, 61, 909-927.
Gallant, A.R., P.E. Rossi and G. Tauchen (1993), Nonlinear dynamic structures, Econometrica, 61, 871-907.
Gerd, H., A. Lunde, N. Shephard and K. Sheppard (2009) Oxford-Man Institute's realized library, Oxford-Man Institute, University of Oxford.
Hafner, C.M. and H. Herwartz (2006), Volatility impulse responses for multivariate GARCH models: An exchange rate illustration, Journal of International Money and Finance, 25, 719-740.
Jeantheau, T. (1998), Strong consistency of estimators for multivariate ARCH models, Econometric Theory, 14, 70-86.
Jin, X., S.X. Lin, and M. Tamvakis, (2012). Volatility transmission and volatility impulse response functions in crude oil markets, Energy Economics, 34(6), 2125-2134.
Kloessner, S. and S. Wagner, (2012): Exploring All VAR Orderings for Calculating Spillovers? Yes, We Can! - A Note on Diebold and Yilmaz (2009), Journal of Applied Econometrics, 29 (1), 172-179
Koop, G., M.H. Pesaran and S.M. Potter (1996). Impulse response analysis in nonlinear multivariate models. Journal of Econometrics, 74, 119-147.
Koutmos, G. and G.G. Booth (1995), Asymmetric volatility transmission in international stock markets, Journal of International Money and Finance, 14, 747-762.
Le Pen, Y., B. Sévi, (2010), Volatility transmission and volatility impulse response functions in European electricity forward markets, Energy Economics, 32(4), 758-770.
Lin, W.-L. (1997), Impulse response function for conditional volatility in GARCH models, Journal of Business & Economic Statistics, 15, 15-25.
McAleer, M., S. Hoti and F. Chan (2009), Structure and asymptotic theory for multivariate asymmetric conditional volatility, Econometric Reviews, 28, 422-440.
Olson, E., A.J. Vivian, and M.E. Wohar, (2014), The relationship between energy and equity markets: Evidence from volatility impulse response functions. Energy Economics, 43, 297-305.
Panopoulou, E., and T. Pantelidis, (2009) Integration at a cost: evidence from volatility impulse response functions, Applied Financial Economics, 19(11), 917-933.
Pesaran, M.H. and Shin, Y. (1998), Generalized Impulse Response Analysis in Linear
Multivariate Models, Economics Letters, 58, 17-29.
Ross, S.A. (1989), Information and volatility: The no-arbitrage Martingale approach to timing and resolution irrelevancy, Journal of Finance, 44, 1-17
Sims, C. (1980), Macroeconomics and reality, Econometrica 48, 1-48.
Tauchen, G., H. Zhang, and M. Liu (1996), Volume, volatility and leverage: A dynamic analysis, Journal of Econometrics, 74, 177-208.