A MEM-Based Analysis of Volatility Spillovers in East Asian Financial Markets

21 Pages Posted: 9 Mar 2009

See all articles by Robert F. Engle

Robert F. Engle

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); New York University (NYU) - Volatility and Risk Institute

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits; University of Bologna - Rimini Center for Economic Analysis (RCEA); Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti"

Margherita Velucchi

University of Florence - Dipartimento di Statistica, Informatica, Applicazioni (DiSIA)

Multiple version iconThere are 2 versions of this paper

Date Written: July 20, 2008

Abstract

Transmission mechanisms in financial markets reflect the degree of integrationof capital markets, as well as the relative importance of real economies. Market volatility has components which may behave differently across quiet and turbulent periods, but appear to behave in similar ways from market to market. In this paper we suggest a Multiplicative Error Model (MEM) approach to study volatility spillovers among a set of markets, using as a proxy, the market daily range. We model the dynamics of the expected volatility of one market including interactions with the past daily ranges of other markets, building a fully interdependent model. We analyze eight East Asian markets in the period 1995-2006, devoting particular attention to the treatment of the 1997-1998 turbulent period. We find no evidence of independent markets while several interdependence relationships can be stressed. Hong Kong turns out to be the most important market while Taiwan seems to have suffered quite limited effects from the crisis. Impulse response functions and multiperiod forecast profiles are developed and suggest a build-up in the spillover effects.

Suggested Citation

Engle, Robert F. and Gallo, Giampiero M. and Velucchi, Margherita, A MEM-Based Analysis of Volatility Spillovers in East Asian Financial Markets (July 20, 2008). NYU Working Paper No. FIN-08-036, Available at SSRN: https://ssrn.com/abstract=1354523

Robert F. Engle (Contact Author)

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Volatility and Risk Institute ( email )

44 West 4th Street
New York, NY 10012
United States

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits ( email )

viale Mazzini
Roma, Roma 00195
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti" ( email )

Viale G.B. Morgagni, 59
Florence, 50134
Italy
0039 055 2751 591 (Phone)
0039 055 4223560 (Fax)

HOME PAGE: http://www.disia.unifi.it/gallog

Margherita Velucchi

University of Florence - Dipartimento di Statistica, Informatica, Applicazioni (DiSIA) ( email )

Viale Morgagni, 59
Florence, 50134
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
179
Abstract Views
1,249
rank
120,917
PlumX Metrics