Risk Transmission Beyond Financial Crises: Volatility Spillovers and Spillbacks Between SMICs and the U.S.

Abstract

Utilizing VAR-DCC-MVGARCH model and volatility spillover index, we examine international spillovers and spillbacks between SMICs and the U.S. Results show that SMICs and the U.S. present dynamic and asymmetric volatility spillovers and spillbacks during and beyond financial crisis. The effects of previous long-term spillovers on the dynamics of current conditional variances are stronger than previous short-term innovations. Volatility spillbacks from China, South Africa and Mexico vary greatly, being more significant in the post global financial crisis. Furthermore, India and China present significant net spillovers to the other SMICs, whilst South Africa shows more net volatility transmission to Brazil and Mexico.

Keywords: Risk transmission, Volatility spillovers and spillbacks, Spillover index, DCC-GARCH model, Financial crisis, Systemic middle-income countries (SMICs)

JEL Classification: G1, G15, C32, F15, F37