Spillovers Across U.S. Financial Markets

Roberto Rigobon and Brian Sack

No 9640, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Movements in the prices of different assets are likely to directly influence one another. This paper develops a model that identifies the contemporaneous interactions between asset prices in U.S. financial markets by relying on the heteroskedasticity in their movements. In particular, we estimate a structural-form GARCH' model that includes the short-term interest rate, the long-term interest rate, and the stock market. The results indicate that there are strong contemporaneous interactions between these variables. Accounting for this behavior is critical for interpreting daily changes in asset prices and for predicting the future paths of their variances and correlations. We demonstrate the importance of this consideration in a risk-management application.

JEL-codes: E44 E47 (search for similar items in EconPapers)
Date: 2003-04
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: AP
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Citations: View citations in EconPapers (45)

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Working Paper: Spillovers across U.S. financial markets (2003)
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