EXPLORING ALL VAR ORDERINGS FOR CALCULATING SPILLOVERS? YES, WE CAN!—A NOTE ON DIEBOLD AND YILMAZ (2009)

Stefan Klößner and Sven Wagner ()

Journal of Applied Econometrics, 2014, vol. 29, issue 1, 172-179

Abstract: Diebold and Yilmaz (Economic Journal 2009; 119; 158–171) introduce the spillover index to measure linkages between international financial markets. As their index depends on the ordering of the variables in the underlying VAR model, they check robustness by computing the index for a small number of randomly chosen permutations, stating that it was impossible to explore the huge number of renumerations. Building on a new divide‐and‐conquer strategy, we provide an algorithm for swiftly calculating the spillover index's maximum and minimum over all renumerations. Using this new algorithm, we find that the true range of the spillover index can be up to three times as large as estimated by Diebold and Yilmaz. Copyright © 2013 John Wiley & Sons, Ltd.

Date: 2014
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