(Quantile) Spillover Indexes: simulation-based evidence, confidence intervals and a decomposition

43 Pages Posted: 29 Nov 2023 Last revised: 29 Nov 2024

See all articles by Massimiliano Caporin

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Giovanni Bonaccolto

Kore University of Enna - School of Economics and Law

Syed Jawad Hussain Shahzad

Montpellier Business School

Date Written: November 10, 2023

Abstract

Quantile-spillover indexes have recently become popular for analyzing tail interdependence. Through a simulation study, we show that the estimation of spillover indexes is affected by a positive distortion when the parameters of the fitted models are not evaluated with respect to their statistical significance, or are not estimated subject to regularization. The distortion is reduced for increasing sample sizes, thanks to, or by filtering out non-significant parameters, even if in small samples it does not disappear due to type I error. We introduce a simulation-based approach to estimate confidence intervals of quantile spillover indexes. We provide an algebraic decomposition of quantile spillover separating the dynamic interdependence from the contemporaneous interdependence. Empirical evidence on equity sector indices shows that distortions on real data are sizable, and the decomposition highlights the predominance of contemporaneous effects. Our results are confirmed for the Spillover index of Diebold and Yilmaz (2009).

Keywords: Quantile-spillover index, Diebold-Yilmaz index, confidence interval, index decomposition

JEL Classification: C10, C13, C32, C33, C55, C58

Suggested Citation

Caporin, Massimiliano and Bonaccolto, Giovanni and Shahzad, Syed Jawad Hussain, (Quantile) Spillover Indexes: simulation-based evidence, confidence intervals and a decomposition (November 10, 2023). Available at SSRN: https://ssrn.com/abstract=4629224 or http://dx.doi.org/10.2139/ssrn.4629224

Massimiliano Caporin (Contact Author)

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Giovanni Bonaccolto

Kore University of Enna - School of Economics and Law ( email )

Italy

Syed Jawad Hussain Shahzad

Montpellier Business School ( email )

2300 Avenue des Moulins, 34080
Montpellier
France

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