Better to Give than to Receive: Predictive Directional Measurement of Volatility Spillovers

Francis Diebold and Kamil Yilmaz ()

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: Using a generalized vector autoregressive framework in which forecast-error variance decompositions are invariant to variable ordering, we propose measures of both total and directional volatility spillovers. We use our methods to characterize daily volatility spillovers across U.S. stock, bond, foreign exchange and commodities markets, from January 1999 through September 2009. We show that despite significant volatility fluctuations in all four markets during the sample, cross-market volatility spillovers were quite limited until the global financial crisis that began in 2007. As the crisis intensified so too did the volatility spillovers, with particularly important spillovers from the bond market to other markets taking place after the collapse of Lehman Brothers in September 2008.

Keywords: Asset Market; Asset Return; Stock Market; Market Linkage; Financial Crisis; Contagion; Vector Autoregression; Variance Decomposition (search for similar items in EconPapers)
JEL-codes: F3 G1 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010-01, Revised 2010-03
New Economics Papers: this item is included in nep-bec and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

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Journal Article: Better to give than to receive: Predictive directional measurement of volatility spillovers (2012)
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