The Nature of Volatility Spillovers Across the International Capital Markets

64 Pages Posted: 7 Jun 2019

See all articles by Gustavo Peralta

Gustavo Peralta

Universidad Carlos III de Madrid; CNMV

Multiple version iconThere are 2 versions of this paper

Date Written: 2016


This paper studies the nature of volatility spillovers across countries from the per-spective of network theory and by relying on data of US-listed ETFs. I use a Lasso-related technique to estimate the International Volatility Network (IVN) where the nodes correspond to large-cap international stock markets while the links account for significant volatility lead-lags. Also included in the analysis is the International Trade Network (ITN), whose links measure bilateral export-import flows thus, cap-turing fundamental interconnections between countries. I find that the IVN and the ITN resemble each other closely pointing out that volatility does not disseminate randomly but tends to spread across fundamentally related economies. I also note that the lagged volatility reactions embedded in the IVN are consistent with the no-tion of gradual diffusion of information across investors who are subject to limited attention and home bias. This hypothesis is formally tested by using as a direct proxy of investors’ attention the aggregate search frequency in Google. The empiri-cal results support this intuition indicating that higher volatility surprises in key foreign markets predict higher domestic attention upon those markets in subse-quent days. Once domestic attention is captured by such external shocks, it is con-temporaneously transformed into higher domestic volatility.

Keywords: Network Theory, Spillover of Volatility, International Financial Contagion

JEL Classification: C00, C32, C45, C51, C55, C58, F30, F36, G01, G10, G15, G17

Suggested Citation

Peralta, Gustavo and Peralta, Gustavo, The Nature of Volatility Spillovers Across the International Capital Markets (2016). CNMV Working Paper No. 63, 2016, Available at SSRN: or

Gustavo Peralta (Contact Author)

CNMV ( email )

C/ Edison, 4
Madrid, Madrid 28006

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903

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