#07-01
Measuring Financial Asset Return and Volatility Spillovers, with Application to to Global Equity Markets
Francis X. Diebold and Kamil Yilmaz, Jamuary 2007
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 sixteen 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: Asset Market, Asset Return, Stock Market, Emerging Market, Market Linkage, Financial Crisis, Herd Behavior, Contagion.
JEL classifications : F30, G15, F36.
