Asymmetric Connectedness of Stocks: How Does Bad and Good Volatility Spill over the U.S. Stock Market?

36 Pages Posted: 6 Aug 2013 Last revised: 29 Oct 2018

See all articles by Jozef Baruník

Jozef Baruník

Charles University in Prague - Department of Economics; Institute of Information Theory and Automation, Prague

Evžen Kočenda

Charles University in Prague - Institute of Economic Studies; Institute of Information Theory and Automation (Czech Academy of Sciences) - Department of Econometrics; CESifo; University of Regensburg - Institute for East and Southeast European Studies; University of Michigan at Ann Arbor - The William Davidson Institute

Lukas Vacha

Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic; Charles University in Prague - Department of Economics

Date Written: August 6, 2013

Abstract

In this paper, we examine how to quantify asymmetries in volatility spillovers that emerge due to bad and good volatility. Using data covering most liquid U.S. stocks in seven sectors, we provide ample evidence of the asymmetric connectedness of stocks at the disaggregate level. Moreover, the spillovers of bad and good volatility are transmitted at different magnitudes that sizably change over time in different sectors. While negative spillovers are often of substantial magnitudes, they do not strictly dominate positive spillovers. We find that the overall intra-market connectedness of U.S. stocks increased substantially during the recent financial crisis.

Keywords: Volatility, Spillovers, Semivariance, Asymmetric effects, Financial markets

JEL Classification: C18, C58, G15

Suggested Citation

Barunik, Jozef and Kocenda, Evzen and Vacha, Lukas, Asymmetric Connectedness of Stocks: How Does Bad and Good Volatility Spill over the U.S. Stock Market? (August 6, 2013). Journal of Financial Markets, Vol. 26, 2016. Available at SSRN: https://ssrn.com/abstract=2306489 or http://dx.doi.org/10.2139/ssrn.2306489

Jozef Barunik (Contact Author)

Charles University in Prague - Department of Economics ( email )

Opletalova 26
Prague 1, 110 00
Czech Republic

HOME PAGE: http://ies.fsv.cuni.cz/en/staff/barunik

Institute of Information Theory and Automation, Prague ( email )

Pod vodarenskou vezi 4
CZ-18208 Praha 8
Czech Republic

HOME PAGE: http://staff.utia.cas.cz/barunik/home.htm

Evzen Kocenda

Charles University in Prague - Institute of Economic Studies ( email )

Opletalova St. 26
Prague, 11000
Czech Republic

HOME PAGE: http://kocenda.fsv.cuni.cz

Institute of Information Theory and Automation (Czech Academy of Sciences) - Department of Econometrics ( email )

Pod vodarenskou vezi 4
CZ-18208 Praha 8
Czech Republic

CESifo

Poschinger Str. 5
Munich, DE-81679
Germany

University of Regensburg - Institute for East and Southeast European Studies

Landshuterstr. 4
Regensburg, 93047
Germany

University of Michigan at Ann Arbor - The William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Lukas Vacha

Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic ( email )

Pod vodarenskou vezi 4
Praha, CZ-18208
Czech Republic

Charles University in Prague - Department of Economics ( email )

Opletalova 26
Prague, 11000
Czech Republic

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