Volatility Spillovers, Interdependence and Comovements: A Markov Switching Approach
Computational Statistics & Data Analysis, Vol. 52, No. 6, pp. 3011-3026, 2008
Posted: 30 Apr 2009
Date Written: feb 28, 2008
The transmission mechanisms of volatility between markets can be characterized within a new Markov Switching bivariate model where the state of one variable feeds into the transition probability of the state of the other. A number of model restrictions and hypotheses can be tested to stress the role of one market relative to another (spillover, interdependence, comovement, independence, Granger noncausality). The model is estimated on the weekly high-low range of five Asian markets, assuming a central (but not necessarily dominant) role for Hong Kong. The results show plausible market characterizations over the long run with a spillover from Hong Kong to Korea and Thailand, interdependence with Malaysia and comovement with Singapore.
Keywords: Markov Switching, Multiple chains, Volatility, Spillover effect, Comovements
JEL Classification: C22, C51, C53
Suggested Citation: Suggested Citation