Volatility spillover and multivariate volatility impulse response analysis of GFC news events

David E. Allen;, Michael McAleer;, Robert Powell;, Abhay K. Singh;

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This article applies two measures to assess spillovers across markets: the Diebold and Yilmaz’s (2012) spillover index and the Hafner and Herwartz’s (2006) analysis of multivariate GARCH models using volatility impulse response analysis. We use two sets of data, daily realized volatility (RV) estimates taken from the Oxford-Man RV library, for the S&P500 and the FTSE, plus 10 years of daily returns series for the New York Stock Exchange Index and the FTSE 100 index. Both data sets capture both the global Financial Crisis (GFC) and the subsequent European Sovereign Debt Crisis (ESDC). The spillover index captures the transmission of volatility to and from markets, plus net spillovers. The Volatility Impulse Responses (VIRF) have to be calibrated to conditional volatility estimated at a particular point in time. We explore the impact of three different shocks, the onset of the GFC, the height of the GFC, and the impact of the ESDC. Our modelling includes leverage and asymmetric effects applying a multivariate GARCH model, and further analysis using both BEKK and diagonal BEKK (DBEKK) models. We find the impact of negative shocks is larger, but shorter in duration, in this case a difference between 3 and 6 months.

LanguageEnglish
Pages3246-3262
Number of pages17
JournalApplied Economics
Volume49
Issue number33
DOIs
Publication statusPublished - 15 Jul 2017
Externally publishedYes

Fingerprint

News
Multivariate volatility
Impulse response analysis
Global financial crisis
Spillover
Volatility spillover
Realized volatility
Sovereign debt crises
Multivariate GARCH models
Impulse response
Leverage effect
Asymmetric effects
Modeling
New York Stock Exchange
Conditional volatility

Keywords

  • asymmetry
  • BEKK
  • DBEKK
  • ESDC
  • GFC
  • Spillover index
  • Volatility impulse Response Functions (VIRF)

Cite this

Allen;, David E. ; McAleer;, Michael ; Powell;, Robert ; Singh;, Abhay K. / Volatility spillover and multivariate volatility impulse response analysis of GFC news events. In: Applied Economics. 2017 ; Vol. 49, No. 33. pp. 3246-3262.
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Volatility spillover and multivariate volatility impulse response analysis of GFC news events. / Allen;, David E.; McAleer;, Michael; Powell;, Robert; Singh;, Abhay K.

In: Applied Economics, Vol. 49, No. 33, 15.07.2017, p. 3246-3262.

Research output: Contribution to journalArticleResearchpeer-review

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