Download this Paper Open PDF in Browser

Cross-Market Spillovers with ‘Volatility Surprise’

35 Pages Posted: 28 Jul 2014  

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management

Julien Chevallier

University of Paris 8 Vincennes-Saint Denis

Date Written: May 23, 2014

Abstract

This article adopts the asymmetric DCC with one exogenous variable (ADCCX) model developed by Vargas (2008), by updating the concept of ‘volatility surprise’ to capture cross-market relationships. Current methods for measuring spillovers do not focus on volatility interactions, and neglect cross-effects between the conditional variances. This paper aims to fill this gap. The dataset includes four aggregate indices representing equities, bonds, foreign exchange rates and commodities from 1983 to 2013. The results provide strong evidence of spillover effects coming from the ‘volatility surprise’ component across markets. Against the background of the recent financial crisis, the aim is to contribute to the literature on the interdependencies of financial markets, both in conditional means and (co)variances. In addition, asset management implications are derived.

Keywords: Cross-market relationships, Volatility surprise, Volatility spillover, ADCCX, Asset management

JEL Classification: C32, C4, G15

Suggested Citation

Aboura, Sofiane and Chevallier, Julien, Cross-Market Spillovers with ‘Volatility Surprise’ (May 23, 2014). Available at SSRN: https://ssrn.com/abstract=2472443 or http://dx.doi.org/10.2139/ssrn.2472443

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management ( email )

99 avenue Jean-Baptiste
Clément, Villetaneuse 93430
France

Julien Chevallier (Contact Author)

University of Paris 8 Vincennes-Saint Denis ( email )

Paris
France

Paper statistics

Downloads
67
Rank
288,647
Abstract Views
386