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This paper investigates whether dynamic volatility spillovers across freight-shipping markets can be explained by a comprehensive set of indicators capturing shipping investors’ sentiment. Our results reveal that an increase in the ratio of second-hand over newbuilding vessel price triggers an increase of the transmission of economic information within both the dry-bulk and tanker segments, while an increase in the ratio of price-to-earnings, as well as in the ratio of vessels sold over vessels of the global fleet also trigger an increase of the economic information transmission within each of the dry-bulk and tanker vessels, respectively. These results have important implications for shipping-market players, as they reveal novel mechanisms of the transmission of economic information within the segments and across the sub-segments of freight-shipping markets.

The Russian economy is emerging, meaning that natural resources play a dominant role in economic development. Given the considerable volatility in resource prices, we investigate the volatility spillovers among policy uncertainty, international oil prices, exchange rate, stock index and metal prices covering the period of 2 July 2008 to 15 May 2020 for the Russian economy applying Dynamic Connectedness based on Time-Varying Parameter Vector Autoregression (TVP-VAR). Our empirical investigation demonstrates that gold price, Russian policy uncertainty, oil price and stock index are net volatility contributors, whereas palladium, platinum, silver and exchange rate are net volatilities receivers. Market capitalisation and silver market are found to be the highest net contributor and net receiver, respectively. The palladium appears as a net volatility receiver initially, just after the global financial crisis. The Russian economic policy uncertainty appears to be the dominant volatility contributor from 2008 to 2014, but onward it turned to be a net volatility receiver. Over the year 2014, gold price was the prominent volatility contributor to another market when the oil price dropped significantly. The total connectivity of the markets are highly anchored with several exogenous shocks, including economic sanction, adoption of floating exchange rate, oil price plunge. Our empirical findings provide several policy implications to portfolio managers and Russian regional stakeholders. © Sohag K., Husain S., Chukavina K., Al Mamun Md Text. 2022. Russian Foundation for Basic Research, РФФИ; Iran National Science Foundation, INSF The article has been prepared with the support of the grant of RFBR and INSF, code: 20-510-56021 “Modeling the future of Oil Demand and Fiscal Sustainability: Evidence from Iran and Russia”.

With the accelerated pace of financial globalization and the gradual increase in linkages among financial markets, correctly identifying and describing the risk spillover and network diffusion in the financial system is extremely important for the prevention and management of systemic risk. Based on this, this paper takes the equity markets of 17 countries around the world from 2007 to 2022 as the research object, measures the volatility spillover effect of global financial markets using R-Vine Copula and the DY spillover index, constructs the volatility spillover network of global financial markets, discovers the spillover and diffusion pattern of global financial market risks, and provides relevant suggestions for systemic risk management. It is found that (1) there are certain aggregation characteristics in the network diffusion of global financial market volatility spillover; (2) developed European countries such as the Netherlands, France, the UK, and Germany are at the center of the network and have a strong influence; (3) Asian countries such as China, Japan, and India are at the periphery of the network; and (4) shocks from crisis events enhance the global financial market volatility spillover effect. Based on the above findings, effective prevention of global financial market risk volatility spillover and network diffusion and reduction in systemic risk need to be carried out in two ways. First, by focusing on the financial markets of key countries in the network, such as the Netherlands, the UK, France, and Germany. The second approach is to mitigate the uneven development in global financial markets and reduce the high correlation among them.

The global lockdowns including movement restrictions during COVID‐19 pandemic impacted the hospitality business negatively and by extension the trading of related stocks such as travel & tourism stocks. Owing to the long standing hedging potential of gold, we examine whether this potential can be extended to the travel & tourism stocks in order to hedge against the associated risks caused by the current pandemic. Using daily data from January 2016 to July 2020 and constructing optimal portfolio strategies, we find that gold serves as a very strong hedge and safe haven for travel & tourism stocks, most especially in the pandemic period. This conclusion validates the inclusion of gold in the diversified portfolio of travel & tourism stocks in order to improve the risk‐adjusted return performance for investors in the sector particularly during COVID‐19 pandemic.

This paper examines the nature of interconnectedness between the returns of the price of oil and foreign exchange on selected agricultural commodity prices. To do this, the authors leverage the novel methodology of a spillover index developed by Diebold and Yilmaz (2012) that reports predictive directional measurement of volatility spillovers. International Journal of Forecasting 28, no. 1: 57-66) that reports: (i) Net spillovers; (ii) Directional spillovers; (iii) Pairwise net spillovers; and (iv) Total spillover indices. This study also captures all secular and cyclical movements with the aid of rolling window analysis to ensure the robustness of the estimations. Empirical analyses are constructed based on monthly realised frequency data from 2006M1 to 2016M7. The empirical analysis from the full sample size shows that rice, sorghum, price inflation, a nominal effective exchange rate and oil price display weak pass-through among the investigated variables while banana, cocoa, groundnut, maize, soybean and wheat are net transmitters of spillover. Based on these revelations, several policy prescriptions for the agricultural commodity markets and their diverse responses to either exchange rate fluctuations or a dwindling oil price are suggested for Nigeria.

[EN] Volatility spillovers are a characteristic of interconnected electricity markets. We use high-frequency prices to analyze the transmission of volatility across five Australian regional electricity markets. We propose several models: The first includes only realized variances; the second adds realized covariances; the last two include positive and negative realized semi(co)variances, separately, obtained from the decomposition of the realized covariance matrix into components based on the sign of the underlying returns. We carry out the analysis for both static and dynamic frameworks and relate the behavior of spillovers to major events and policies affecting the markets. Results show that ignoring covariances results in spillovers being underestimated and highlight the importance of the role of semi(co)variances in detecting asymmetric spillovers. Finally, we discuss implications for short-run market participants and long-term planning by regulators. The authors would like to thank two anonymous reviewers for valuable comments and suggestions that helped to improve the paper. Financial support from Ministerio de Ciencia e Innovacion under research grant PID2019-108718GB-I00 and from Dpto. de Educacion del Gobierno Vasco under research grant IT1336-19 is acknowledged. Evelyn Chanatasig thanks the University of the Basque Country, UPV/EHU, for financial aid under the trainee researcher program for Ph.D. students from Latin America. Open access funding provided by the University of the Basque Country.

This study examines the influences of the power structure evolution along the global coffee value chain on coffee spot-futures commodity markets. Specifically, this study aims to analyze the mechanisms and extent to which the coffee spot-futures commodity markets are affected by shifts in the power structure in each phase following the collapse of the ICA from the perspective of price discovery and volatility spillovers by employing the PT–IS and bivariate EGARCH models. This research covers two actively traded coffee types, Arabica and Robusta, and utilizes daily time-series price data over 1990:01–2020:04 for Arabica and over 2008:01–2020:04 for Robusta. The empirical results indicate that coffee spot markets play a dominant role in price discovery for both Arabica and Robusta over all periods, and volatility spillovers occur from the coffee spot market to the futures markets. This study demonstrates to coffee market players that power structure evolutions across coffee’s global value chain have not significantly changed the underlying socio-spatial distribution of the coffee value chain over the post-ICA period. The results further imply that a buyer-driven governance is emerging in the coffee industry and large coffee roasters are beginning to dominate the global coffee value chain. Moreover, large coffee roasters are incentivized to diversify their marketing strategies by considering more market factors as part of their market differentiation strategies. Government interventions are necessary to establish price risk-management mechanisms to protect small-scale coffee growers.

It is frequently discussed in the literature that the correlation between low-correlation assets under ordinary market conditions may increase during crisis periods. To contribute to the ongoing debates, this paper empirically examines risk transmission between oil and precious metal markets induced by the COVID-19 pandemic using the DCC-GARCH model. The findings reveal evidence of a significant risk transmission between oil prices and precious metal prices, particularly during the onset of the COVID-19 pandemic. The findings point out that the negative relationship between oil and all precious metals returns in the pre-COVID-19 period has changed with the effect of the pandemic. In this process, it is revealed that the negative relationship between oil and gold has strengthened, but the negative relationship between oil and silver has weakened. In addition, the correlations between oil and platinum and palladium turn positive. The empirical findings imply that investors and portfolio managers seeking portfolio diversification and hedging opportunities in a high-risk environment such as the COVID-19 pandemic should consider gold and silver assets for investment.

This paper investigates the nature of volatility spillovers between stock returns and hedge funds returns in twelve Asia Pacific countries in the 1997–2018 period. The sample period encompasses sub periods, 1997 Asia financial crisis, 2008 Global financial crisis and 2010 Eurozone crisis; these sub periods were characterised by financial upheavals. We apply the EGARCH methodology to model volatility and volatility spillovers in and between the markets. Our results show that the volatility of stock returns does not affect the volatility of hedge funds returns; however, there are inconsistent evidence of unidirectional volatility spillover from hedge funds to stock market returns.

Utilizing the recently developed measure of global risk aversion by Xu (2017), we show that global risk aversion is a significant determinant of international equity correlations, consistently across all emerging markets examined. The positive effect of risk aversion on emerging market comovements is particularly strong for South Africa and Turkey and is consistent with contagion effects. The results underscore the importance of non-cash flow shocks in models of contagion and portfolio risk. Publisher's Version

This paper investigates the volatility spillovers and co-movements among oil prices and stock prices of major oil and gas corporations over the period between 18th June 2001 and 1st February 2016. To do so, we use the spillover index approach by Diebold and YilmazDiebold and Yilmaz, 2009 ; Diebold and Yilmaz, 2012, Diebold and Yilmaz, 2014 ; Diebold and Yilmaz, 2015 and the dynamic correlation coefficient model of Engle (2002) so as to identify the transmission mechanisms of volatility shocks and the contagion of volatility among oil prices and stock prices of oil and gas companies, respectively. Given that volatility transmission across oil and major oil and gas corporations is important for portfolio diversification and risk management, we also examine optimal weights and hedge ratios among the aforementioned series. Our results point to the existence of significant volatility spillover effects among oil and oil and gas companies’ stock volatility. However, the spillover is usually unidirectional from oil and gas companies’ stock volatility to oil volatility, with BP, CHEVRON, EXXON, SHELL and TOTAL being the major net transmitters of volatility to oil markets. Conditional correlations are positive and time-varying, with those between each of the aforementioned companies and oil being the highest. Finally, the diversification benefits and hedging effectiveness based on our results are discussed.

Nous enquetons sur la volatilite des rendements et les retombees provenant de l'huile au marche des changes(FOREX) les marche dans les pays exportateurs de petrole au utilisant VARMA-cadre GARCH aves un accent particulier sur les membres de l'OPEP. Les resultats font apparaitre d'importantes retombees retour bidirectionnelle entre l'huile et des changes dans les pays de l'OPEP. Monnaies locales des pays exportateurs de petrole s'est apprecie par rapport au dollar americain avec des augmentations des prix du petrole, et vice versa. Ces constatations sont d'importance pour les decideurs dan le controle des prix de petrole les chocs inflationnister et les taux de change dans les pays exportateurs de petrole, comme le Cadre fournit la mesure de comparaison de proxy-FOREX petrole gestion dans ces pays.

This paper addresses the interaction between interest rates and the significant increases in both Taiwanese house and stock market prices seen in recent years. Changes in house prices impact banks’ nonperforming loans, whereas changes in interest rates directly influence the ability of individuals and businesses to pay loan interest, accentuating the co-movements between house and stock mar-ket prices. We investigate the nonlinear relations and volatility spillovers among house prices, interest rates and stock market prices using monthly data from January 1985 to March 2009 for Taiwan. We find that the Smooth Transition Vector Error Correction GARCH (STVEC-GARCH) model has the best forecasting ability based on goodness of fit tests while showing a nonlinear and co-integrated relation among the three variables. Specifically, house price leads stock market returns when the interest rate is led by either house price or stock market returns. The volatility of stock market returns has significant impacts on interest rates, implying that borrowers should be aware of stock market fluctuations and thus strengthen their risk management because of unexpected changes. First Publish Online: 14 Dec 2016

The aim of this study is to investigate sources of food prices volatility. The analysis uses daily series for volatility of corn, soybean, wheat, rice, US dollar, crude oil, and SP500 futures spanning the period January 4, 2000 to April 1, 2017. The authors employ the generalized vector autoregressive framework in rolling sample approach in order to capture the time-varying nature of volatility spillovers. The results reveal that: volatility spillovers measures change over time; most of the volatility spillovers are observed within the two groups of markets: food markets and “non-food” markets; corn market is net volatility transmitter.

International audience; This article proposes an empirical study of the Samuelson effect in electricity markets. Our motivations are twofold. First, although the literature largely assesses the decreasing pattern in the volatilities along the price curve in commodity markets, it has not extensively tested the presence of such a dynamic feature in electricity prices. Second, the analysis of a non-storable commodity enriches the literature on the behavior of commodity prices. Indeed, it has been sometimes asserted that the Samuelson effect results from the presence of inventories. We examine the four most important electricity futures markets worldwide for the period from 2008 to 2014: the German, Nordic, Australian, and US markets. We also use the American crude oil market as a benchmark for a storable commodity negotiated on a mature futures market. Our analysis has two steps: i) in addition to the traditional tests, we propose and test a new empirical implication of the Samuelson effect: price shocks should spread from the physical market to the paper market, and not the reverse; ii) based on the concept of “indirect storability”, we investigate the link between the Samuelson effect and the storability of the commodity. We find evidence of a Samuelson effect in all of the electricity markets and show that storage is not a necessary condition for such an effect to appear. These results should be taken into account for the understanding of the dynamic behavior of commodity prices, for the valuation of electricity assets, and for hedging operations.

We examine the response of a broad set of digital assets to US Federal Fund interest rate and quantitative easing announcements, specifically examining associated volatility spillover and feedback effects. We classify each digital asset into one of three categories: Currencies; Protocols; and Decentralised Applications (dApps). Currency-based digital assets experience idiosyncratic spillovers in the period immediately after US monetary policy announcements, while application or protocol-based digital assets are largely immune to policy volatility spillover and feedback. Mineable digital assets are found to be more susceptible to monetary policy volatility spillovers and feedback than non-mineable. Responses indicate a diverse market within which, not all assets are comparable to Bitcoin.

This study examines the impact of the two recent political and economic crises of March 2014 and June 2017 on the stock market dependence and volatility spillover between Qatar and the other GCC countries (Saudi Arabia, the United Arab Emirates, Bahrain, Kuwait and Oman). To this end, the Bai and Perron testing procedure for structural breaks and two dummy variables reflecting the two intra-GCC crises were used to examine the impact of these two crises on the dynamic conditional correlation of the stock market obtained from estimating several different multivariate GARCH models (namely, DCC-, ADCC- and cADCC-GARCH). In addition, to assess the volatility spillover and the degree of connectedness between the different stock markets, we use the static and dynamic volatility spillovers developed by Diebold and Yilmaz, 2012 , Diebold and Yilmaz, 2014 . Using data of stock markets returns covering the period from January 2011 to September 2018, the empirical results show that only the recent GCC crisis of June 2017 significantly affected the level of stock market dependence and volatility spillovers between Qatar and the other GCC countries, except for Bahrain. In particular, the results suggest that the economic blockade on Qatar since June 2017 only lowered the level of dependence and did not totally sever the financial links between the countries. The results show also that after the second GCC crisis, the Qatar net spillover was approximately zero except for Saudi Arabia, which was negative. The results have implications for investors and policymakers in the region.

This paper studies the impact of the April allowance submissions mandate under the European Union emission trading scheme (EU ETS) in carbon emission markets. Using intraday order flow data, we test for the cross-market efficiency of spot-futures dynamics and find that the equilibrium level, adjustment speed and no-arbitrage boundaries of the spot and futures relationship shift subsequent to the submission date. In addition, our results show that the allowance submissions affect the price discovery process, with the carbon spot market providing stronger price leadership in the periods before the submission date and the futures market playing the predominant informational role thereafter. Using the heterogeneous autoregressive realized volatility (HAR-RV) model, we also find a change in volatility spillovers before the submission date, particularly from the spot to the futures market. Overall, the results suggest that the April allowance submissions have significant impact on the time series dynamics of spot and futures carbon emission markets.

This article investigates the interdependence of stock-forex markets in MENA (Middle East and North Africa) countries for the February 26, 1999 to June 30, 2014 period. The analysis has been performed through three competing models: the VAR-CCC-GARCH model of Bollerslev [1990]; the VAR-BEKK-GARCH model of Engle and Kroner [1995]; and the VAR-DCC-GARCH model of Engle [2002]. Our findings confirm that both markets are interdependent and corroborate the stock and flow oriented approaches. We also find that, comparing to optimal weights, hedge ratios are typically low, denoting that hedging efficiency is quite good. Our estimation of hedging efficiency suggests that incorporating foreign exchange in a full stock, unhedged portfolio increases the risk-adjusted return while reducing its variance. (We note here that the forex market is overweighted for both portfolio allocations and hedging strategies.) Moreover, this conclusion holds for all countries in all three models.

International audience; The paper applies an event study methodologyaims to investigate the macroeconomic announcements effects on Standard&Poor’s500 and oil prices. Our results provide evidence for a significant impact of the US macroeconomic news on oil prices. This impact is split into two components, namely the direct effect (common response) and indirect effect (volatility transmission). Altogether our results show that the volatility transmission is bidirectional. Not only a significant volatility transmission from the oil market to the US stock market is revealed, but also a high volatility transmission is recorded from the oil market to the stock market especially after the release of consumption indicators.

This paper examines the effects of return spillovers from regional (Saudi Arabia) and global (US) markets to GCC stock markets (Bahrain, Oman, Kuwait, Qatar, United Arab Emirates). The paper develops various bivariate GARCH models for regional and global returns: BEKK, constant correlation and dynamic correlation. The specification tests are used to choose between the models with and without asymmetric effects. The estimated innovations for the regional and global returns are then used as input for the univariate volatility spillover model which allows the unexpected returns of any particular GCC stock market to be driven by three sources of shocks: local, regional from Saudi Arabia and global from US. We find significant return spillover effects from Saudi Arabia and US to GCC markets. Trade, turnover and institutional quality have significant impacts on regional volatility spillovers from Saudi Arabia to GCC markets. There are macroeconomic policy implications associated with the strengthening of intra-regional and cross-border trade in goods, services and assets and regulatory framework.

Trading activity in G7 stock markets reflects not only the macroeconomic and financial impact of these G7 economies in international economic growth, but also their financial interdependence. While this nexus of major stock markets has been explored in terms of volatility and return spillovers, there has been no combined analysis of return, volatility and illiquidity spillovers. We study illiquidity spillovers because they are transmissions of trading activity and, thereof, transmissions of information and market sentiment. We find that the dynamics of international stock markets are characterized by persistent illiquidity and also that illiquidity shocks are significantly correlated across markets. Furthermore, we discover Granger causal associations between risk, return and illiquidity across G7 stock market and also within each stock market. Our findings bear significance for the regulation of international financial markets and also for international portfolio diversification.

This study examines the nature and dynamics of volatility spillovers between crude oil and agricultural commodity markets since the 2008&ndash, 09 financial crisis. We tested for volatility spillovers with a flexible bivariate heterogeneous autoregressive model to identify the short-, mid-, and long-term spillover effects. We observed bidirectional spillovers of short-term volatilities between crude oil and agricultural commodity markets in the crisis period, compared to mid-term and long-term volatilities of corn being transmitted to the crude oil volatility in the post-crisis period. These findings suggest that crude oil and agricultural commodity markets have become less integrated after the 2008&ndash, 09 crisis.

In this article, we examine the dynamic currency linkages for BRIS (Brazil, Russia, India and South Africa) and 15 other emerging market economies (EMEs) using weekly data from 2001 to 2018. Using the asymmetric dynamic conditional correlation (ADCC)-EGRARCH framework, we find that the average correlation between BRIS currencies in the pre-crisis period is low and stood at 0.29, which rose to 0.39 in the post-crisis period implying contagion effects. Based on both ADCC results and Diebold-Yilmaz, Vector Autoregressive (VAR)framework enhanced by Greenwood-Nimmo block aggregation technique, we find that Brazil is a net transmitter while Russia, India and South Africa seem to be net receivers of information based on the first two moments. We further find empirical support for expanding BRIS into a larger economic block. Based on prior research findings on equity market linkages on BRICS and EMEs as well as our work on currency market linkages, we suggest Mexico, Poland and Hungary as potential candidates to be included in this economic block in the first phase. Turkey, Chile, Columbia and Romania may be included in the next phase as they dominate BRIS in either stock or currency markets of BRIS. This study is pertinent for global policymakers, international monetary agencies, currency investors and academia.

Does uncertainty in capital markets affect the business cycle? We find that financial volatility predicts 30% of post-war economic activity in the United States, and that during the Great Moderation, aggregate stock market volatility explains, alone, up to 55% of real growth. In out-of-sample tests, stock price volatility helps predict turning points over and above traditional financial variables such as creditor term spreads, and other leading indicators. Combining stock volatility and the term spread leads to a proxy for (i) aggregate risk, (ii) risk-premiums and (iii) a gauge of monetary policy conduct, which tracks and anticipates the business cycle. At the heart of our analysis is a notion of volatility based on a slowly changing measure of return variability. This volatility is designed to capture long-run uncertainty in capital markets, and is particularly successful at explaining trends in the economic activity at horizons of six months and one year.

The present paper studies stock-commodity markets linkage using var-garch approach for the period spanning from January 3, 2000 to March 12, 2014. The analysis has been performed through three competing specifications; the var-ccc-garch, the var-bekk-garch, and the var-dcc-garch, ignoring and accounting for structural breaks in volatility to look at the impact of the breaking events on volatility spillovers and its persistence as well as the implications on portfolio management. We found significant interdependency in first and second conditional moments. The structural break dates help forecast current conditional volatility and define its persistence. Their effects have been found slight on optimal weights, miscellaneous on hedge ratios but important on hedging effectiveness. We consider that our findings open up new insights for managerial and governmental policy purposes.

This paper examines the short-run dynamic relationships between stock market and real activity, within a country, for the UK and the US. The Cross Correlation Function testing procedure is applied to test for causality in mean and in variance between the stock market and the real economic sector. Besides variance causation, volatility spillover effects are examined through the multivariate specification form of the Exponential GARCH model. There is evidence of significant reciprocal volatility spillovers between the two sectors within a country, implying stronger interdependencies in the UK rather than in the US and asymmetric behavior only in the case of the UK.

This study considers the linkage of the Russian equity market to the world market, examining the international transmission of the Russia's 1998 financial crisis utilizing the GARCH–BEKK model proposed by Engle and Kroner [Engle, R.F., Kroner, K.F., 1995. Multivariate simultaneous generalized ARCH. Economet. Theor. 11, 122–150]. We find evidence of direct linkage between the Russian equity market with regards to returns and volatility, while the weakness of the linkage suggests that the Russian equity market was only partially integrated into the world market. At the time of the crisis, evidence of contagion is clear.

This study investigates the return spillovers and volatility spillovers from developed markets (e.g., Europe, Japan and the US) into the financial markets of selected emerging countries in Asia and the Middle East and North Africa (MENA) region. Based on constant and trend spillover models, we find evidence of significant spillover effects from developed markets to emerging markets. The results from variance ratios indicate the dominance of US shocks across all emerging markets, though the effect varies widely among countries. New to these literature, we conduct an empirical analysis quantifying the underlying determinants affecting the extent of shock spillovers. The results show that bilateral factors such as trade volume, portfolio investment and distance are significant in explaining the spillover effects.

This paper analyses the role of investor sentiment in the contemporaneous dynamics of spot and futures markets and in volatility spillovers between them. To explore this issue, we analyse spot and futures markets on stock market indexes in different countries: the S&P500 for the US, and a representative set of European indexes (CAC40, DAX30, FTSE100, IBEX35 and Eurostoxx50). Consistent with expectations, we have shown that the correlation is not stable with the level of investor sentiment. More specifically, the correlation between the two markets diminishes significantly during periods of high investor sentiment. Moreover, volatility shocks in either market are also found to have less impact during these periods. These results are compatible with behavioural finance theories suggesting that high investor sentiment leads to an increase in noise trading and a decline in arbitrage activity due to institutional investors’ attempts to limit their risk exposure. This paper has received financial support from the Spanish Ministry of Science and Innovation (ECO2009-12819) and from the Spanish Ministry of Economy and Competitiveness (ECO2012-35946-C02-01).

From the 2007 subprime crisis to the recent Eurozone debt crisis,the banking industry has experienced terrible financial instabilitywith increasing volatility levels of bank default probability. UsingEuropean CDS spreads data from January 2006 to March 2013, thispaper sheds light on the impact of three recent significant events ofcredit risk volatility transmission between, firstly, Eurozone andnon-Eurozone banks, and then between distressed peripheral andcore countries inside the Eurozone. We employ an asymmetricmultivariate BEKK model to measure cross-market volatility spil-lovers. We find that both recent crises are distinct episodes. Theglobal financial crisis that originated outside Europe is character-ized by unidirectional volatility spillovers in credit risk from insideto outside the Eurozone. By contrast, the Eurozone debt crisis isrevealed to be local in nature with the euro as the key element,suggesting a financial market fragmentation within the Eurozonebetween distressed peripheral and non-distressed core Eurozonecountries, whereas retaining the local currency has acted as afirewall. The authors would like to express their gratitude for the funding received from Fundación Ramón Areces. A. González-Urteaga acknowledges financial support from ECO2012-35946-C02-01 and ECO2012-34268.

This study investigates the return spillovers and volatility spillovers from developed markets (e.g., Europe, Japan and the US) into the financial markets of selected emerging countries in Asia and the Middle East and North Africa (MENA) region. Based on constant and trend spillover models, we find evidence of significant spillover effects from developed markets to emerging markets. The results from variance ratios indicate the dominance of US shocks across all emerging markets, though the effect varies widely among countries. New to these literature, we conduct an empirical analysis quantifying the underlying determinants affecting the extent of shock spillovers. The results show that bilateral factors such as trade volume, portfolio investment and distance are significant in explaining the spillover effects.

This paper analyses the effects of newspaper coverage of macro news on the spread between the yield on the 10-year German Bund and on sovereign bonds in eight countries belonging to the euro area (Belgium, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain) using daily data for the period 1999-2014. The econometric analysis is based on the estimation of a VAR-GARCH model. The results can be summarised as follows. Negative news have significant positive effects on yield spreads in all PIIGS countries but Italy before September 2008; markets respond more to negative news, and their reaction has increased during the recent financial crisis. News volatility has a significant impact on yield spread volatility, the effects being more pronounced in the case of negative news and bigger in the most recent crisis period, especially in the PIIGS countries. Further, the conditional correlations between yield spreads and negative news are significant and positive, and their increase in absolute value during the financial crisis (especially in the PIIGS countries) indicates a higher sensitivity of yield spreads to negative releases.

A partir de la crisis subprime en 2007 y hasta la reciente crisis de deuda de la zona euro el sector bancario europeo ha experimentado una terrible situación de inestabilidad financiera traducida en un aumento de los niveles de los CDS (utilizados como aproximación del riesgo de crédito). Este trabajo investiga si los canales de transmisión de volatilidad en los mercados bancarios europeos han cambiado después de tres importantes eventos de crisis durante el período comprendido entre enero de 2006 y marzo de 2013. La crisis financiera global se ha caracterizado por un efecto spillover unidireccional de los shocks en volatilidad del riesgo de crédito desde el interior al exterior de la Eurozona. Por el contrario, la crisis de deuda de la Eurozona se revela como una crisis de naturaleza local con el euro como elemento clave, lo que deja de manifiesto la existencia de una fragmentación del mercado entre los países periféricos más castigados por la crisis y los países del centro de la Eurozona con menores dificultades, mientras que por otro lado, mantener la moneda local ha actuado como cortafuegos. Estos resultados arrojan luz sobre el impacto del riesgo de crédito bancario en Europa para diferentes estados de crisis financieras. From 2007 subprime crisis to the recent Eurozone debt crisis the European banking industry has experienced a terrible financial instability situation with increasing levels of CDS spreads (used as a proxy of credit risk). This paper investigates whether volatility transmission channels in European banking markets have changed after three significant crises’events during the period January 2006 to March 2013. The global financial crisis is characterized by a unidirectional volatility shocks spillovers effect in credit risk from inside to outside the Eurozone. By contrast, the Eurozone debt crisis is revealed to be local in nature with the euro as the key element suggesting a market fragmentation between distressed peripheral and non-distressed core Eurozone countries, where as retaining the local currency have acted as a firewall. With these findings we are able to shed light on the impact of the different crises on the European banking credit risk dynamics. L. Ballester would like to express her gratitude for the funding received from UV-INV-PRECOMP-80704 and A. González-Urteaga acknowledges financial support from ECO2012-35946-C02-01 and ECO2012-34268.

This paper analyzes the performance of multiple steps estimators of vector autoregressive multivariate conditional correlation GARCH models by means of Monte Carlo experiments. We show that if innovations are Gaussian, estimating the parameters in multiple steps is a reasonable alternative to the maximization of the full likelihood function. Our results also suggest that for the sample sizes usually encountered in financial econometrics, the differences between the volatility and correlation estimates obtained with the more efficient estimator and the multiple steps estimators are negligible. However, when innovations are distributed as a Student-t, using multiple steps estimators might not be a good idea. Financial support from IVIE (Instituto Valenciano de Investigaciones Económicas) to the project “Estimating Multivariate GARCH Models in Multiple Steps with an Application to Stock Markets” is gratefully acknowledged. We also acknowledge the Spanish Government for grant ECO2011-29751.

This paper investigates bi-directional linkages between the stock and foreign exchange markets of a number of emerging economies. This is accomplished by estimating a vector autoregressive model with Generalized Autoregressive Conditional Heteroskedasticity (VAR-GARCH) for each of twelve emerging economies. Included in model dynamics are the effects of global and regional stock markets on the stock and foreign exchange markets. We find significant bi-directional spillovers between stock and foreign exchange markets. Moreover, we investigate whether a country's choice of exchange rate regime or the Asian financial crisis had a significant effect on the volatility spillover mechanism. © 2013 Elsevier B.V. 27 248 268 248-268

This study examines volatility spillovers from developed markets of the United States and Japan to emerging markets in Asian-Pacific region during the period of two crises: 1997 Asian currency crisis and 2007 subprime credit crisis. Using recently developed bivariate multiplicative error model to examine volatility spillovers between the two stock markets, we find that the US market is more influential than the Japanese market for volatility transmissions to the Asian markets even though volatility spillovers from both the US and Japan to Asian countries are statistically significant. Additionally, the increasing spillovers of volatility from the US and Asian markets to Japan could be found as a result of the recent subprime financial crisis, while Japanese stock market is independent of other markets over the other three sub-periods. In addition, the volatility spillovers vary over time as they increase substantially after 1997 Asian currency crisis and their directions change dramatically after 2007 subprime credit crisis.

The fundamental aim of the paper is to analyze the presence and magnitude of the volatility transmissions in emerging markets, namely India, Hungary, Poland, Turkey and Brazil prior to, and during the latest financial turmoil. Using weekly returns of stock market indices from 2005 to 2011, the study applies Multivariate BEKK Methodology. The empirical results indicate that there exist significant volatility spillover effects for all five countries, though the spillovers are not homogeneous across the pairs. Results exhibit very large GARCH and relatively low ARCH effects. The study provides evidence of high level of financial integration in emerging markets. From an investor perspective, one important implication is that adding stocks from different emerging markets to a porfolio does not lead to risk reduction.

Credit spreads can be derived from the prices of securities traded in different markets. In this paper we investigate the price discovery process in single-name credit spreads obtained from bonds, credit default swaps, equities and equity options. Using a vector error correction model (VECM) of changes in credit spreads for a sample that includes the 2007-2009 financial crisis, we find that during periods of high volatility, price discovery takes place primarily in the option market, whilst the equity market leads the other markets during tranquil periods. By adding GARCH effects to the VECM specification, we also find strong evidence of volatility spillovers from the option market to the other markets in crisis periods. Finally, we show how GARCH models can be used to generate time-varying measures of price discovery.

Spillover and contagion e ects have gained significant interest in the recent years of financial crisis. Attention has not only been directed to relations between returns of financial variables, but to spillovers in risk as well. I use the family of Constant Conditional Correlation GARCH models to model the risk associated with financial time series and to make inferences about Granger causal relations between second conditional moments. The restrictions for second-order Granger noncausality between two vectors of variables are derived. To assess the credibility of the noncausality hypotheses, I employ Bayes factors. Bayesian testing procedures have not yet been applied to the problem of testing Granger noncausality. Contrary to classical tests, Bayes factors make such testing possible, regardless of the form of the restrictions on the parameters of the model. Moreover, they relax the assumptions about the existence of higher-order moments of the processes required in classical tests.

In this paper we investigate the price discovery process in single-name credit spreads obtained from bond, credit default swap (CDS), equity and equity option prices. We analyse short term price discovery by modelling daily changes in credit spreads in the four markets with a vector autoregressive model (VAR). We also look at price discovery in the long run with a vector error correction model (VECM). We find that in the short term the option market clearly leads the other markets in the sub-prime crisis (2007–2009). During the less severe sovereign debt crisis (2009–2012) and the pre-crisis period, options are still important but CDSs become more prominent. In the long run, deviations from the equilibrium relationship with the option market still lead to adjustments in the credit spreads observed or implied from other markets. However, options no longer dominate price discovery in any of the periods considered. Our findings have implications for traders, credit risk managers and financial regulators.

This paper examines whether there is evidence of spillovers of volatility from the Chinese stock market to its neighbours and trading partners, including Australia, Hong Kong, Singapore, Japan and USA. China's increasing integration into the global market may have important consequences for investors in related markets. In order to capture these potential effects, we explore these issues using an Autoregressive Moving Average (ARMA) return equation. A univariate GARCH model is then adopted to test for the persistence of volatility in stock market returns, as represented by stock market indices. Finally, univariate GARCH, multivariate VARMA-GARCH, and multivariate VARMA-AGARCH models are used to test for constant conditional correlations and volatility spillover effects across these markets. Each model is used to calculate the conditional volatility between both the Shenzhen and Shanghai Chinese markets and several other markets around the Pacific Basin Area, including Australia, Hong Kong, Japan, Taiwan and Singapore, during four distinct periods, beginning 27 August 1991 and ending 17 November 2010. The empirical results show some evidence of volatility spillovers across these markets in the pre-GFC periods, but there is little evidence of spillover effects from China to related markets during the GFC. We undertook some additional analysis for this period featuring an exploration of whether there was any spillover effect in the mean equations as well as in the variance equations. We used a bimean equation to model the conditional mean in the individual markets plus an ARMA model to capture volatility spillovers from China to the five markets considered. This augmented model showed much greater evidence of spillovers. We also suspected that the correlations were not constant and applied a moving window of 120 days of daily observations to explore time-varying conditional and fitted correlations. There was evidence of non-constant correlations and even a period of negative correlations between the US and China at the height of the GFC. This is presumably because the GFC was initially a US phenomenon, before spreading to developed markets around the globe and it was not a Chinese phenomenon.

Crude oil price volatility has been analyzed extensively for organized spot, forward and futures markets for well over a decade, and is crucial for forecasting volatility and Value-at-Risk (VaR). There are four major benchmarks in the international oil market, namely West Texas Intermediate (USA), Brent (North Sea), Dubai/Oman (Middle East), and Tapis (Asia-Pacific), which are likely to be highly correlated. This paper analyses the volatility spillover and asymmetric effects across and within the four markets, using three multivariate GARCH models, namely the constant conditional correlation (CCC), vector ARMA-GARCH (VARMA-GARCH) and vector ARMA-asymmetric GARCH (VARMA-AGARCH) models. A rolling window approach is used to forecast the 1-day ahead conditional correlations. The paper presents evidence of volatility spillovers and asymmetric effects on the conditional variances for most pairs of series. In addition, the forecast conditional correlations between pairs of crude oil returns have both positive and negative trends. Moreover, the optimal hedge ratios and optimal portfolio weights of crude oil across different assets and market portfolios are evaluated in order to provide important policy implications for risk management in crude oil markets.

In the last two decades, the world economy has been challenged by different economic and financial crisis. These events have captured researchers’ attention, and in particular the analysis of contagion effects derived from stock market shocks have been a focal point of interesting discussions. However, there is little consensus on how contagion should be defined and indentified. Consequently, this paper contributes to the already settled debate on the area proposing the analysis of contagion effects in a worldwide framework, where three different econometric models to test for contagion are being used. The main results are in line with most of the existing literature analysing this topic, and our results do not find strong evidence supporting contagion effects derived from the US stock markets, neither in a worldwide nor in a regional form. Hence, these findings bring evidence that there is still a lot of work to be done on how to define contagion, and even more so, on how to measure it.

This paper investigates the conditional correlations and volatility spillovers between the crude oil and financial markets, based on crude oil returns and stock index returns. Daily returns from 2 January 1998 to 4 November 2009 of the crude oil spot, forward and futures prices from the WTI and Brent markets, and the FTSE100, NYSE, Dow Jones and S&P500 stock index returns, are analysed using the CCC model of Bollerslev (1990), VARMA-GARCH model of Ling and McAleer (2003), VARMA-AGARCH model of McAleer, Hoti and Chan (2008), and DCC model of Engle (2002). Based on the CCC model, the estimates of conditional correlations for returns across markets are very low, and some are not statistically significant, which means the conditional shocks are correlated only in the same market and not across markets. However, the DCC estimates of the conditional correlations are always significant. This result makes it clear that the assumption of constant conditional correlations is not supported empirically. Surprisingly, the empirical results from the VARMA-GARCH and VARMA-AGARCH models provide little evidence of volatility spillovers between the crude oil and financial markets. The evidence of asymmetric effects of negative and positive shocks of equal magnitude on the conditional variances suggests that VARMA-AGARCH is superior to VARMA-GARCH and CCC. The estimation and analysis of the volatility and conditional correlations between crude oil returns and stock index returns can provide useful information for investors, oil traders and government agencies that are concerned with the crude oil and stock markets, especially regarding optimal hedging across the two markets.

The purpose of this paper is to investigate the international information transmission of return and volatility spillovers from the US and Japan and the rest of the Asia-Pacific markets using daily stock market return data covering the last 14 years. In the majority of the markets under scrutiny, we provide evidence of direct volatility spillovers, running mainly from the Japanese and US markets and pointing to more rapid information transmission during the recent years. First, the volatility of the Asia-Pacific markets is becoming influenced more by the US market for the recent years. Secondly, for international investors to get profits from the returns of Asia-Pacific securities, it is necessary to pay attention to the US market directly. Third, Korea, Singapore and Hong Kong are among the most Asia-Pacific markets vulnerable to shocks from US investors due to the large ratio of portfolio holding.

This paper investigates the nature of volatility spillovers between stock returns and exchange rates changes for the Czech Republic, Hungary, Poland and Slovakia for the 1999-2006 period. We divide our sample in two sub period, prior to the introduction of the Euro as since the single currency has been introduced. We use an EGARCH modelling which takes into account whether bad news has the same impact on volatility as good news. Our results show that in terms of volatility spillover effects from stock returns to exchange rates returns, there is non-existence of significant spillovers in these countries, what suggest the no existence of integration between these two financial markets. If we analyse the spillover effects from exchange rates to stock markets we found that the overall results is the lack of significant spillovers from exchange rate to stock returns. We also found that volatility in stock returns and exchange rates tends to decrease after the countries joined the European Union.

This paper investigates the nature of volatility spillovers between stock returns and a number of exchange rates in six Latin American countries and one European economy in the 1998-2006 period. We divide our sample into sub periods, prior to and after the introduction of the Euro and we apply the EGARCH methodology to model volatility. Our results show that the volatility of stock returns affects the volatility of exchange rates; however, we do not find evidence of volatility transmission in the opposite direction.

This paper investigates the nature of volatility spillovers between stock returns and a number of exchange rates changes for the G-7 countries for the 1996-2006 period. We divide our sample into a number of sub periods, prior to and after the introduction of the Euro, we use EGARCH modelling which takes into account whether bad news has the same impact on volatility as good news. Our results show that in terms of volatility spillover effects from stock returns to exchange rates returns, there is a large degree of consistency across countries and time periods with significant spillovers found for all countries, in all three periods, with the exception of Italy in the pre-Euro period. The impact of stock market volatility on exchange rates thus does not appear to have been altered significantly by the introduction of the Euro in the sense that the cross exchange rates against the $, Yen, £ and CHF existed prior to the introduction of the Euro as well as after it across nearly all G-7 markets In contrast, our results indicate that in terms of volatility spillovers from exchange rates to stock markets, the results are less consistent both across countries and over time but overall we find much less evidence supporting volatility spillovers from exchange rates to stock markets. There is however some commonality regarding which exchange rates we find significant volatility spillover effects to stock markets for the period after the Euro was introduced. The lack of significant spillovers from exchange rate changes to stock returns found here for some countries across a number of exchange rates is consistent with existing research in this area.

An examination of the linkages between the emerging stock markets in Warsaw and Budapest and the established markets in Frankfurt and the U.S. By using a four-variable asymmetric GARCH-BEKK model, we find evidence of return and volatility spillovers from the developed to the emerging markets. However, as the estimated time-varying conditional co-variances and the variance decompositions indicate limited interactions among the markets, the emerging markets are weakly linked to the developed markets. The implication is that foreign investors will benefit from the reduction of risk by adding the stocks in the emerging markets to their investment portfolio.