Financial Market Spillovers Around the Globe

Posted: 19 Jul 2007 Last revised: 7 Oct 2011

See all articles by Thomas Dimpfl

Thomas Dimpfl

University of Tuebingen - Department of Statistics and Econometrics

Robert Jung

University of Hohenheim - Institute of Economics

Date Written: June 10, 2011

Abstract

This paper investigates the transmission of return and volatility spillovers around the globe. It draws on index futures of three representative indices, namely the Dow Jones Euro Stoxx 50, the S&P 500 and the Nikkei 225. Devolatised returns and realised volatilities are modeled separately using a structural vector autoregressive model, thereby accounting for the particular sequential time structure of the trading venues. Within this framework, we test hypotheses in the spirit of Granger causality tests, investigate the short-run dynamics in the three markets using impulse response functions, and identify leadership effects through variance decomposition. Our key results are as follows. We find weak and short-lived return spillovers, in particular from the USA to Japan. Volatility spillovers are more pronounced and persistent. The information from the home market is most important for both returns and volatilities; the contribution from foreign markets is less pronounced in the case of returns than in the case of volatility. Possible gains in terms of forecasting precision when applying our modelling strategy are illustrated by a forecast evaluation.

Keywords: Spillovers, Index Futures, Realized Volatility, Structural VAR model, HAR-RV model

JEL Classification: C32, G15

Suggested Citation

Dimpfl, Thomas and Jung, Robert C., Financial Market Spillovers Around the Globe (June 10, 2011). Applied Financial Economics, Vol. 22, Issue 1, 2012 , Available at SSRN: https://ssrn.com/abstract=1001615

Thomas Dimpfl (Contact Author)

University of Tuebingen - Department of Statistics and Econometrics ( email )

Germany

Robert C. Jung

University of Hohenheim - Institute of Economics ( email )

Schloss-Mittelhof (Ost)
70593 Stuttgart
Germany

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