Domestic and foreign sources of volatility spillover to South African asset classes

Andrew Duncan () and Alain Kabundi ()

Economic Modelling, 2013, vol. 31, issue C, 566-573

Abstract: The paper characterises domestic and foreign sources of volatility transmission for South African (SA) bonds, commodities, currencies, and equities. We introduce a small-open-economy extension of the volatility spillover model proposed by Diebold and Yilmaz (2012). Based on generalised variance decompositions (Pesaran and Shin, 1998) of a vector autoregressive model, this approach combines bidirectional spillovers exchanged by domestic assets with volatility injections imported from shocks to the global financial system. The analysis relates to a sample of daily observations ranging from October 1996 to June 2010. The estimated spillover levels are time-varying, and increase during domestic and foreign crises. Average domestic spillovers of 38% exceed average foreign spillovers of 4.7%, and maximum domestic spillovers estimated for the United States for a similar sample period (Diebold and Yilmaz, 2012). These findings suggest a high degree of systemic risk in SA and, furthermore, that this risk is predominantly related to country-specific factors. Commodity and equity shocks are identified as the primary sources of spillovers to other asset classes.

Keywords: Asset market linkages; Financial crises; Generalised variance decompositions; Small open economies; Volatility spillovers (search for similar items in EconPapers)
JEL-codes: F3 G01 G1 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:31:y:2013:i:c:p:566-573

DOI: 10.1016/j.econmod.2012.11.016

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