The Joint Spillover Index

29 Pages Posted: 25 Sep 2019 Last revised: 26 Mar 2020

See all articles by William D. Lastrapes

William D. Lastrapes

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Thomas Wiesen

University of Maine School of Economics

Date Written: November 3, 2019

Abstract

We propose an alternative measure of system-wide connectedness to the popular generalized spillover index, based on generalized forecast error variance decompositions, of Diebold and Yilmaz (2012, 2104). Our measure relies on joint conditional forecasts to decompose variance, as opposed to the popular method's reliance on single-variable conditioning sets, and is a more precise measure of aggregate spillovers. We show in an application to US industry sector stock returns that the difference between the two measures can be substantial.

Keywords: Connectedness, Market integration, Variance decomposition

JEL Classification: C4, C32, G1

Suggested Citation

Lastrapes, William D. and Wiesen, Thomas, The Joint Spillover Index (November 3, 2019). Economic Modelling, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3454761 or http://dx.doi.org/10.2139/ssrn.3454761

William D. Lastrapes (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Terry College of Business
Athens, GA 30602-6254
United States
706-542-3569 (Phone)
706-542-3376 (Fax)

Thomas Wiesen

University of Maine School of Economics ( email )

Orono, ME 04469
United States

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