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Measuring Persistence in Volatility Spillovers

Christian Conrad and Enzo Weber

No 473, University of Regensburg Working Papers in Business, Economics and Management Information Systems from University of Regensburg, Department of Economics

Abstract: This paper analyzes volatility spillovers in multivariate GARCH-type models. We show that the cross-effects between the conditional variances determine the persistence of the transmitted volatility innovations. In particular, the effect of a foreign volatility innovation on a conditional variance is even more persistent than the effect of an own innovation unless it is offset by an accompanying negative variance spillover of sufficient size. Moreover, ignoring a negative variance spillover causes a downward bias in the estimate of the initial impact of the foreign volatility innovation. Applying the concept to portfolios of small and large firms, we find that shocks to small firm returns affect the large firm conditional variance once we allow for (negative) spillovers between the conditional variances themselves.

Keywords: Multivariate GARCH; spillover; persistence; small and large firms (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 C53 G10 (search for similar items in EconPapers)
Date: 2013-04-11
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Citations: View citations in EconPapers (7)

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Working Paper: Measuring Persistence in Volatility Spillovers (2013) Downloads
Working Paper: Measuring Persistence in Volatility Spillovers (2013) Downloads
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