Dissecting Financial Connectedness in Spillovers and Correlations

53 Pages Posted: 12 Aug 2020 Last revised: 4 Jan 2022

See all articles by Lai T. Hoang

Lai T. Hoang

Monash University - Monash Centre for Financial Studies

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Date Written: January 3, 2022

Abstract

This paper proposes a novel econometric framework to estimate connectedness, its components spillovers and correlations and their power to explain the variation of returns and volatility. The results based on a sample of large stocks and global stock market indices show that spillovers have comparatively low explanatory power in normal periods but high explanatory power in crisis periods. The estimates indicate that past information is more quickly incorporated in stock prices in normal times than in times of extreme price movements. A comparison of the COVID-19 outbreak with the 2008 financial crisis also suggests the COVID-19 shock led to more spillovers and thus was more disruptive.

Keywords: spillovers, contemporaneous correlations, VAR, COVID-19, market efficiency, financial contagion

JEL Classification: C32, C58, G11

Suggested Citation

Hoang, Lai T. and Baur, Dirk G., Dissecting Financial Connectedness in Spillovers and Correlations (January 3, 2022). Available at SSRN: https://ssrn.com/abstract=3670567 or http://dx.doi.org/10.2139/ssrn.3670567

Lai T. Hoang

Monash University - Monash Centre for Financial Studies ( email )

13/f 30 Collin Street
Melbourne, 3000
Australia

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
104
Abstract Views
1,296
Rank
386,065
PlumX Metrics