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Volatility Spillovers, Interdependence and Comovements: A Markov Switching Approach

Giampiero Gallo () and Edoardo Otranto ()

Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"

Abstract: The transmission mechanisms of volatility between markets can be characterized within a new Markov Switching bivariate model where the state of one variable feeds into the transition probability of the state of the other. A number of model restrictions and hypotheses can be tested to stress the role of one market relative to another (spillover, interdependence, comovement, independence, Granger non causality). The model is estimated on the weekly high--low range of five Asian markets, assuming a central (but not necessarily dominant) role for Hong Kong. The results show plausible market characterizations over the long run with a spillover from Hong Kong to Korea and Thailand, interdependence with Malaysia and comovement with Singapore.

Keywords: Markov Switching; multiple chains; volatility; spillover effect; comovements. (search for similar items in EconPapers)
JEL-codes: C32 C52 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets, nep-ore and nep-sea
Date: 2007-10
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Journal Article: Volatility spillovers, interdependence and comovements: A Markov Switching approach (2008) Downloads
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