Volatility spillover dynamics and relationship across G7 financial markets

Kim Liow

The North American Journal of Economics and Finance, 2015, vol. 33, issue C, 328-365

Abstract: This paper examines conditional volatility spillovers among five major asset classes (public real estate, stock, bond, money and currency) domestically and internationally in G7 countries from January 1997 to December 2013, utilizing the generalized spillover framework of Diebold and Yilmaz (2012). Results indicate that the extent of cross-asset volatility spillovers within each G7 country is low. Volatility persistence is dominant in all domestic asset markets. The main contributor to the total volatility spillovers is the general equity portfolio. Evidence of co-integration among the volatility spillover cycles implies the presence of unobserved common shocks. Finally, the co-movements between the spillover cycles of domestic business cycle fluctuations and financial/asset market return volatility cycles are correlated, but in different manner according to the frequencies considered. These empirical findings provide fresh insights in cross-asset and cross-market volatility spillovers for central bank policy makers, as well as risk management and portfolio diversification for international investors.

Keywords: Conditional volatility spillover effects; Directional and net volatility spillovers; Long-run equilibrium; Error-correction model; Cyclical dependencies (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (45)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:33:y:2015:i:c:p:328-365

DOI: 10.1016/j.najef.2015.06.003

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