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
TypeArticle accepté pour publication ou publié
External document linkhttp://dx.doi.org/10.2139/ssrn.2472443
Journal nameReview of Financial Economics
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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 / KeywordsCross-market relationships; Volatility surprise; Volatility spillover; ADCCX; Asset management; Crisis; Exchange Rate; Financial Market; Foreign Exchange
JELC32 - 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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