Dynamic volatility spillover and market emergency: Matching and forecasting

Wei Zhou, Yan Chen and Jin Chen

The North American Journal of Economics and Finance, 2024, vol. 71, issue C

Abstract: Volatility spillover can cause successive and similar volatilities in different markets even financial or economic crises. Many related studies have been presented to analyze it from theoretical and empirical perspectives. However, can this phenomenon show or forecast the important market emergency? How to match them and then provide valuable investment and management suggestions? This could be an interesting topic and also the main issue in this study. In this paper, we first design a new dynamic volatility spillover index (DVSI) to quantitatively measure the volatility spillover effect and its dynamic trends. Furthermore, we further propose the market emergency matching (MEM) model to match the dynamic volatility spillover effect with the market emergency. Thus, we can predictively deal with the market emergency from the dynamic volatility spillover perspective, which could be more effective and valuable in studying this financial phenomenon. Lastly, an empirical investigation of nine international energy markets is given in detail to show these new methods. We find that the proposed methods can not only show the features of the volatility spillover phenomenon among energy markets but also forecast the energy market emergencies and their development trends, which is an important contribution of this study. Thus, this paper provides a new tool to analyze market emergencies and their risk even financial crises.

Keywords: Dynamic volatility spillover; Market emergency; DVSI method; MEM model; Energy markets (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:71:y:2024:i:c:s1062940824000354

DOI: 10.1016/j.najef.2024.102110

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