Big in Japan: Global Volatility Transmission between Assets and Trading Places

Andreas Masuhr

No 8119, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: This paper proposes a new framework to model distinct channels of volatility transmission between assets and trading places. The model is estimated using a data set comprising of three stock indices traded at three major trading places: the Nikkei at the Tokyo Stock Exchange, the FTSE at the London Stock Exchange and the S&P500 at the New York Stock Exchange. Strong volatility transmission effects can be observed between London and New York, whereas current Japanese volatility mostly depends on past volatility in Japan. For the assets in consideration, spillovers are strong across trading zones, but weak across assets suggesting a close connection between market places and a loose link between assets. Volatility impulse response functions indicate a long lasting and comparably large response of Japanese volatility to shocks, whereas they suggest a quicker decay of volatility in London and New York.

Pages: 20 pages
Date: 2019-04
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