Working Paper: NBER ID: w13811
Authors: Francis X. Diebold; Kamil Yilmaz
Abstract: We provide a simple and intuitive measure of interdependence of asset returns and/or volatilities. In particular, we formulate and examine precise and separate measures of return spillovers and volatility spillovers. Our framework facilitates study of both non-crisis and crisis episodes, including trends and bursts in spillovers, and both turn out to be empirically important. In particular, in an analysis of nineteen global equity markets from the early 1990s to the present, we find striking evidence of divergent behavior in the dynamics of return spillovers vs. volatility spillovers: Return spillovers display a gently increasing trend but no bursts, whereas volatility spillovers display no trend but clear bursts.
Keywords: No keywords provided
JEL Codes: G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| return spillovers (F69) | gradual integration of financial markets (F30) |
| volatility spillovers (C58) | bursts associated with crisis events (E32) |
| shocks from one market (G10) | forecast error variance of another market's returns (G17) |
| shocks from one market (G10) | forecast error variance of another market's volatilities (G17) |