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Cross-Market Spillovers with 'Volatility Surprise'

Aboura, Sofiane; Chevallier, Julien (2014), Cross-Market Spillovers with 'Volatility Surprise', Review of Financial Economics, 23, 4, p. 194–207. 10.1016/j.rfe.2014.08.002

Type
Article accepté pour publication ou publié
External document link
http://dx.doi.org/10.2139/ssrn.2472443
Date
2014-11
Journal name
Review of Financial Economics
Volume
23
Number
4
Publisher
Elsevier
Pages
194–207
Publication identifier
10.1016/j.rfe.2014.08.002
Metadata
Show full item record
Author(s)
Aboura, Sofiane
Dauphine Recherches en Management [DRM]
Chevallier, Julien
Abstract (EN)
This article adopts the asymmetric DCC with one exogenous variable (ADCCX) model developed by Vargas (2008), by updating the concept of ‘volatility surprise’ to capture cross-market relationships. Current methods for measuring spillovers do not focus on volatility interactions, and neglect cross-effects between the conditional variances. This paper aims to fill this gap. The dataset includes four aggregate indices representing equities, bonds, foreign exchange rates and commodities from 1983 to 2013. The results provide strong evidence of spillover effects coming from the ‘volatility surprise’ component across markets. Against the background of the recent financial crisis, the aim is to contribute to the literature on the interdependencies of financial markets, both in conditional means and (co)variances. In addition, asset management implications are derived.
Subjects / Keywords
Cross-market relationships; Volatility surprise; Volatility spillover; ADCCX; Asset management; Crisis; Exchange Rate; Financial Market; Foreign Exchange
JEL
C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
C40 - General
F31 - Foreign Exchange
G10 - General
G15 - International Financial Markets
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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