Forecasting European stock volatility: The role of the UK

Jun Gao, Xiang Gao and Chen Gu

International Review of Financial Analysis, 2023, vol. 89, issue C

Abstract: This study investigates the lead–lag relationships of volatility among European stock markets. Using weakly realized variance measures, we examine volatility spillover dynamics between the UK and other major stock markets in Europe, thereby identifying a long-run leading role for the UK market portfolio. Lagged UK volatility can significantly predict volatilities in non-UK countries, whereas lagged non-UK volatility has a limited association with UK volatility. Moreover, pairwise Granger causality estimations, predictive regression specifications, and out-of-sample validations reveal that volatility shocks in the UK are gradually reflected in market fluctuations across Europe with varying market-specific delays. Our findings support the limited attention explanation for the volatility predictability of the lagged UK equity index.

Keywords: European stock market; Volatility forecast; Lead-lag relations; Realized variance; Limited attention (search for similar items in EconPapers)
JEL-codes: C22 C53 G14 G15 G17 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521923002442
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:89:y:2023:i:c:s1057521923002442

DOI: 10.1016/j.irfa.2023.102728

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().