Measuring spot variance spillovers when (co)variances are time-varying – the case of multivariate GARCH models

Matthias Fengler and Helmut Herwartz ()

No 1517, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: In highly integrated markets, news spreads at a fast pace and bedevils risk monitoring and optimal asset allocation. We therefore propose global and disaggregated measures of variance transmission that allow one to assess spillovers locally in time. Key to our approach is the vector ARMA representation of the second-order dynamics of the popular BEKK model. In an empirical application to a four-dimensional system of US asset classes - equity, fixed income, foreign exchange and commodities - we illustrate the second-order transmissions at various levels of (dis)aggregation. Moreover, we demonstrate that the proposed spillover indices are informative on the value-at-risk violations of portfolios composed of the considered asset classes.

Keywords: Multivariate GARCH; spillover index; value-at-risk; variance spillovers; variance decomposition (search for similar items in EconPapers)
JEL-codes: C32 C58 F3 G1 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2015-07
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-ore and nep-rmg
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Related works:
Working Paper: Measuring spot variance spillovers when (co)variances are time-varying - the case of multivariate GARCH models (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2015:17

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