Reexamining the time-varying volatility spillover effects: A Markov switching causality approach

Tingguo Zheng and Haomiao Zuo

The North American Journal of Economics and Finance, 2013, vol. 26, issue C, 643-662

Abstract: This paper intends to examine the volatility spillover effect between selective developed markets including U.S., U.K., Germany, Japan and Hong Kong over the sample period from 1996 to 2011. We introduce a Markov switching causality method to model the potential instability of volatility spillover relationships over market tranquil or turmoil periods. This method is more flexible as no prior information on the changing points or size of sample window is needed. From the empirical results, we find the evidence of the existence of spillover effects among most markets, and the bilateral volatility spillover effects are more prominent over turmoil or crisis episodes, especially during Asia crisis and subprime mortgage crisis periods. Moreover, the distinct role of each market is also investigated.

Keywords: Volatility spillover; Markov switching; Granger causality; Range (search for similar items in EconPapers)
JEL-codes: C32 C53 C58 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:26:y:2013:i:c:p:643-662

DOI: 10.1016/j.najef.2013.05.001

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