On detection of volatility spillovers in simultaneously open stock markets

Anssi Kohonen ()

MPRA Paper from University Library of Munich, Germany

Abstract: Empirical research confirms the existence of volatility spillovers across national stock markets. However, the models in use are mostly statistical ones. Much less is known about the actual transmission mechanisms; theoretical literature is scarce, and so is empirical work trying to estimate specific theoretical models. Some economic theory founded tests for such spillovers have been developed for non-overlapping markets; this institutional set up provides a way around the problems of estimating a system of simultaneous equations. However, volatility spillovers across overlapping markets might be as important a phenomenon as across non-overlapping markets. Building on recent advances in econometrics of identifying structural vector autoregressive models, this paper proposes a way to estimate an existing signal-extraction model that explains volatility spillovers across simultaneously open stock markets. Furthermore, a new empirical test for detection of such spillovers is derived. As an empirical application, the theoretical model is fitted to daily data of eurozone stock markets in years 2010--2011. Evidence of volatility spillovers across the countries is found.

Keywords: Volatility transmission; financial contagion; SVAR identification; hypothesis testing; stock markets; euro debt crisis (search for similar items in EconPapers)
JEL-codes: C12 C30 D82 G14 G15 (search for similar items in EconPapers)
Date: 2012-03-08
New Economics Papers: this item is included in nep-ecm, nep-eec and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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