Intra-Daily Volatility Spillovers between the US and German Stock Markets

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractUsing a novel three-phase model based upon a conditional autoregressive Wishart (CAW) framework for the realized (co)variances of the US Dow Jones and the German stock index DAX, we analyze intra-daily volatility spillovers between the US and German stock markets. The proposed model explicitly accounts for three distinct intraday periods resulting from the non-synchronous and partially overlapping opening hours of the two markets. We find evidence of significant short-term volatility spillovers from one intraday period to the next within both markets ('heat-wave effects') as well as across the two markets ('meteor-shower effects'). Furthermore, we find that during the subprime crisis the general persistence of short-term volatility shocks is considerably higher and the spillovers effects between the US and the German stock markets are significantly larger than before the crisis, indicating substantial volatility contagion effects.JEL classification: C32, C58, G17

Modeling multivariate extreme events using self-exciting point processes

“…Other channels of the informational transmission are described in Bekaert, Ehrmann, Fratzscher, and Mehl (2012), where, in particular, the authors provide a strong support for the validity of the "wake-up call" hypothesis, which states that a local crisis in one market may prompt investors to reexamine their views on the vulnerability of other market segments, which in turn may cause spreading of the local shock to other markets. Clustering of extreme events may also be caused by intra-day volatility spillovers both within one market and across different markets, see Golosnoy, Gribisch, and Liesenfeld (2012) for a recent study of this topic. In general, it is not clear whether the joint exceedances are triggered by a jump in one component or just caused by a common factor -both scenarios occur in financial markets and are interesting to analyze.…”

Meteor showers and global asset allocation

“…Clements et al (2015) use high-frequency (10-minute) futures data on the dollar index, Treasury bond, and S&P500 equity index during 2003-2013 and find that meteor shower and heat wave effects are equally significant. Golosnoy et al (2012),using intra-day data of the Dow Jones and DAX, find evidence of significant short-term volatility spillover within both markets, as well as across the two markets (meteor shower effect). They find that the spillover effects between the U.S. and the German stock markets are of significantly longer duration and increased after the subprime crisis, which indicates substantial contagion effects.…”

The economic value of using CAW-type models to forecast covariance matrix

“…The empirical results for individual stocks suggest that these two models typically outperform the BEKK-GARCH (Engle and Kroner, 1995) and the exponentially weighted moving average (EWMA, J.P. Morgan, 1996) model in terms of the evaluation of forecasting accuracy prior to and during the subprime crisis. Golosnoy et al (2012b) modify the CAW model to test intra-daily volatility spillovers between the US and German stock markets, and their results show the existence of significant short-term volatility spillovers from one intraday period to the next and the persistence of short-term volatility shocks.…”