The Joint Spillover Index
29 Pages Posted: 25 Sep 2019 Last revised: 2 Jan 2021
Date Written: 2021
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: Suggested Citation