| Abstract: |
This paper applies two measures to assess spillovers across markets: the
Diebold Yilmaz (2012) Spillover Index and the Hafner and Herwartz (2006)
analysis of multivariate GARCH models using volatility impulse response
analysis. We use two sets of data, daily realized volatility estimates taken
from the Oxford Man RV library, running from the beginning of 2000 to October
2016, for the S&P500 and the FTSE, plus ten years of daily returns series for
the New York Stock Exchange Index and the FTSE 100 index, from 3 January 2005
to 31 January 2015. 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 key difference between the measures is that the spillover
index captures an average of spillovers over a period, whilst volatility
impulse responses (VIRF) have to be calibrated to conditional volatility
estimated at a particular point in time. The VIRF provide information about
the impact of independent shocks on volatility. In the latter analysis, we
explore the impact of three different shocks, the onset of the GFC, which we
date as 9 August 2007 (GFC1). It took a year for the financial crisis to come
to a head, but it did so on 15 September 2008, (GFC2). The third shock is 9
May 2010. Our modelling includes leverage and asymmetric effects undertaken in
the context of a multivariate GARCH model, which are then analysed using both
BEKK and diagonal BEKK (DBEKK) models. A key result is that the impact of
negative shocks is larger, in terms of the effects on variances and
covariances, but shorter in duration, in this case a difference between three
and six months. |