Identification of Global and National Shocks in International Financial Markets via General Dynamic Factor Models
Marc Hallin () and
Stefano Soccorsi ()
No ECARES 2017-10, Working Papers ECARES from ULB -- Universite Libre de Bruxelles
We employ a two-stage general dynamic factor model method to analyse the co-movements between returns and between volatilities of stocks belonging to the US, European, and Japanese financial markets. We find evidence of two common shocks driving the dynamics of volatilities - one global (worldwide) shock and one US-European shock and four "national" shocks in the panel of returns, but no global one. Co-movements in the returns and volatilities panels increased considerably in the period 2007-2012 associated with the Great Financial Crisis and the European Sovereign Debt Crisis. We interpret this finding as the sign of a surge, during crises, of interdependencies across markets, as opposed to contagion. Finally, we show that the global volatility shock, identified via natural timing assumptions, has homogeneous dynamic effects within each individual market but more heterogeneous effects across them, and also has good predictive power on aggregate realised volatilities.
Keywords: dynamic factor models; volatility; financial crises; contagion; interdependence (search for similar items in EconPapers)
JEL-codes: C32 G00 C50 C30 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://dipot.ulb.ac.be/dspace/bitstream/2013/2486 ... I-identification.pdf Full text for the whole work, or for a work part (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eca:wpaper:2013/248676
Ordering information: This working paper can be ordered from
http://hdl.handle.ne ... lb.ac.be:2013/248676
Access Statistics for this paper
More papers in Working Papers ECARES from ULB -- Universite Libre de Bruxelles Contact information at EDIRC.
Bibliographic data for series maintained by Benoit Pauwels ().