A variance spillover analysis without covariances: what do we miss?

Matthias Fengler and Katja I. M. Gisler ()

No 1409, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: We evaluate the relevance of covariances in the transmission mechanism of variance spillovers across the US stock, US bond and gold markets from July 2003 to December 2012. For that purpose, we perform a comparative spillover analysis between a model that considers covariances and a model that considers only variances. Our results emphasise the importance of covariances. Including covariances leads to an overall increase of the spillover level and detects the beginnings of the financial crisis and of the US debt ceiling crisis earlier than the spillover measure that considers only variances. Even for the low-dimensional system that we consider, one misses important variance spillover channels when covariances are excluded.

Keywords: Covariance spillovers; financial crisis; sovereign debt crisis; spillover index; variance decomposition; vector autoregression; variance spillovers (search for similar items in EconPapers)
JEL-codes: C01 C32 G01 G15 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2014-04
New Economics Papers: this item is included in nep-cse
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Related works:
Journal Article: A variance spillover analysis without covariances: What do we miss? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2014:09

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