Volatility contagion: A range-based volatility approach

Min-Hsien Chiang and Li-Min Wang

Journal of Econometrics, 2011, vol. 165, issue 2, 175-189

Abstract: This article proposes a new approach to evaluate volatility contagion in financial markets. A time-varying logarithmic conditional autoregressive range model with the lognormal distribution (TVLCARR) is proposed to capture the possible smooth transition in the range process. Additionally, a smooth transition copula function is employed to detect the volatility contagion between financial markets. The approach proposed is applied to the stock markets of the G7 countries to investigate the volatility contagion due to the subprime mortgage crisis. Empirical evidence shows that volatility is contagious from the US market to several markets examined.

Keywords: LCARR; Price range; Smooth transition copula; Subprime mortgage crisis; TVLCARR; Volatility contagion (search for similar items in EconPapers)
JEL-codes: C22 C32 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:165:y:2011:i:2:p:175-189

DOI: 10.1016/j.jeconom.2011.07.004

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