Spillover Effects in the Presence of Structural Breaks, Persistence and Conditioned Heteroscedasticity

Francisca Mendonça Souza, Claudia Aline de Souza Ramser, Adriano Mendonça Souza and Claudimar Pereira da Veiga
Additional contact information
Francisca Mendonça Souza: IPS - Instituto Politécnico de Setúbal - ESCE - Escola Superior Ciências Empresariais, Campus do IPS - Estefanilha, 2910-761 Setúbal, Portugal
Claudia Aline de Souza Ramser: Department of Administrative Sciences, University of Federal Santa Maria, Av. Roraima, 1000 Cidade Universitária Bairro Camobi/Santa Maria – RS, 97105-900, Brazil
Adriano Mendonça Souza: Department of Statistics, University of Federal Santa Maria, Av. Roraima, 1000 Cidade Universitária Bairro, Camobi/Santa Maria – RS, 97105-900, Brazil
Claudimar Pereira da Veiga: Fundação Dom Cabral, Av. Princesa Diana, 760 Alphaville, Lagoa dos Ingleses, Nova Lima/MG, PR, 34018-006, Brazil

Annals of Financial Economics (AFE), 2023, vol. 18, issue 02, 1-51

Abstract: The intention of this article is to develop an instrument to overcome the limitations caused by traditional analyses and present a combined STR — Smooth Transition Regression model (EGARCH, STRIGARCH, and STR-FIEGARCH) to analyze the contagion effects of the 2008 financial crisis. The proposed instrument will aid the analysis of contagion and the impact of changes in long-term interest rates on the returns of international stock indices and forecasting, with special emphasis on the effects caused by structural breaks, persistence, and conditioned heteroscedasticity. The methodology begins with unit root tests with one and two structural breaks. In the second step, the asymmetry will be analyzed considering the STR models, which will determine the asymmetry relationship between interest rates and the long term, so that in a later step, these asymmetries will be used in the composition of a volatility estimation model, being based on the ARCH models: (i) EGARCH and (ii) FIEGARCH. This study provides a useful instrument based on modeling techniques to make the decision-making process more efficient and objective, providing a choice of instruments that assess the effect of changes in interest rates on stock market indices when influenced by falls, with structural data and better forecasting performance. The results show that the developed mixture models obtained better performance in predicting the effect or impact of changes in interest rates on stock market indices when influenced by structural breaks. STR and the ARCH family are useful instruments that make the decision-making process clearer and more objective when choosing instruments that assess the spillover effect of long-term interest rates on the profitability of international financial indices.

Keywords: Finance; interest rates; yields; stock markets; structural breaks; conditioned heteroscedasticity; persistence (search for similar items in EconPapers)
JEL-codes: C22 C53 C58 F65 G01 G15 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010495222500348
Access to full text is restricted to subscribers

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:wsi:afexxx:v:18:y:2023:i:02:n:s2010495222500348

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010495222500348

Access Statistics for this article

Annals of Financial Economics (AFE) is currently edited by Michael McAleer

More articles in Annals of Financial Economics (AFE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().