Better to Give than to Receive: Predictive Directional Measurement of Volatility Spillovers

29 Pages Posted: 15 Jan 2010 Last revised: 29 Mar 2010

See all articles by Francis X. Diebold

Francis X. Diebold

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Kamil Yilmaz

Koc University

Date Written: March 1, 2010

Abstract

Using a generalized vector autoregressive framework in which forecast-error variance decompositions are invariant to variable ordering, we propose measures of both total and directional volatility spillovers. We use our methods to characterize daily volatility spillovers across U.S. stock, bond, foreign exchange and commodities markets, from January 1999 through January 2010. We show that despite significant volatility fluctuations in all four markets during the sample, cross-market volatility spillovers were quite limited until the global financial crisis that began in 2007. As the crisis intensified so too did the volatility spillovers, with particularly important spillovers from the stock market to other markets taking place after the collapse of Lehman Brothers in September 2008.

Keywords: Asset Market, Asset Return, Stock Market, Market Linkage, Financial Crisis, Contagion, Vector Autoregression, Variance Decomposition

JEL Classification: G1, F3

Suggested Citation

Diebold, Francis X. and Yilmaz, Kamil, Better to Give than to Receive: Predictive Directional Measurement of Volatility Spillovers (March 1, 2010). International Journal of Forecasting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1536123

Francis X. Diebold

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1507 (Phone)
215-573-4217 (Fax)

HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/

National Bureau of Economic Research (NBER)

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Kamil Yilmaz (Contact Author)

Koc University ( email )

Rumeli Feneri Yolu
Sariyer
Istanbul, 34450
Turkey
+90 212 338 1458 (Phone)
+90 212 338 1653 (Fax)

HOME PAGE: http://https://sites.google.com/view/kamilyilmaz/

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