Volatility Spillover and Contagion Effects Between Eurodollar Future and Zero Coupons Markets: Evidence From Italy

Abstract

Τhis paper investigates the potential volatility spillover and contagion effects of the Eurodollar futures market and the zero coupons of Banca Fideuram. We consider the zero coupons of Banca Fideuram ending from 2018 to 2033. By employing a bivariate DCC-GARCH model, we show significant volatility spillover effects. Moreover, we use the definition of contagion as suggested by Forbes and Rigobon. They defined contagion as a significant increase in cross-market linkages after a shock. Dynamic conditional correlations reveal contagion effects in sub-periods between the Eurodollar futures market and all the zero coupons of Banca Fideuram.

Keywords: DCC-GARCH Model, EURODOLLAR Future Market, Zero Coupons, Financial Contagion, Dynamic Conditional Correlations

JEL Classification: C58, C61, G11, G15