| By: |
Francis X. Diebold (University of Pennsylvania and NBER);
Kamil Yilmaz (Koc University) |
| Abstract: |
Using a generalized vector autoregressive framework in which forecast-error
variance decompositions are invariant to variable ordering, we propose
measures of both total and directional volatility spillovers. We use our
methods to characterize daily volatility spillovers across U.S. stock, bond,
foreign exchange and commodities markets, from January 1999 through September
2009. We show that despite significant volatility fluctuations in all four
markets during the sample, cross-market volatility spillovers were quite
limited until the global financial crisis that began in 2007. As the crisis
intensified so too did the volatility spillovers, with particularly important
spillovers from the bond market to other markets taking place after the
collapse of Lehman Brothers in September 2008. |
| Keywords: |
Asset Market, Asset Return, Stock Market, Market Linkage, Financial Crisis, Contagion, Vector Autoregression, Variance Decomposition |
| JEL: |
G1 F3 |
| Date: |
2010–01 |
| URL: |
http://d.repec.org/n?u=RePEc:koc:wpaper:1001&r=mst |