Measuring Spot Variance Spillovers When (Co)Variances are Time-Varying - The Case of Multivariate GARCH Models

42 Pages Posted: 25 Jun 2016

See all articles by Matthias R. Fengler

Matthias R. Fengler

University of St. Gallen - School of Economics and Political Science; Swiss Finance Institute

Helmut Herwartz

University of Kiel - Institute of Statistics and Econometrics

Date Written: June 10, 2016

Abstract

We propose global and disaggregated spillover indices that allow us to assess variance and covariance spillovers, locally in time and conditionally on time-t information. Key to our approach is the vector moving average representation of the half-vectorized 'squared' multivariate GARCH process of the popular BEKK model. In an empirical application to a four-dimensional system of broad asset classes (equity, fixed income, foreign exchange and commodities), we illustrate the new spillover indices at various levels of (dis)aggregation. Moreover, we demonstrate that they are informative of the value-at-risk violations of portfolios composed of the considered asset classes.

Keywords: BEKK model, forecast error variance decomposition, multivariate GARCH, spillover index, value-at-risk, variance spillovers

JEL Classification: C32, C58, F3, G1

Suggested Citation

Fengler, Matthias R. and Herwartz, Helmut, Measuring Spot Variance Spillovers When (Co)Variances are Time-Varying - The Case of Multivariate GARCH Models (June 10, 2016). Available at SSRN: https://ssrn.com/abstract=2800209 or http://dx.doi.org/10.2139/ssrn.2800209

Matthias R. Fengler (Contact Author)

University of St. Gallen - School of Economics and Political Science ( email )

Bodanstrasse 6
CH-9000 St. Gallen, 9000
Switzerland

HOME PAGE: http://www.mathstat.unisg.ch/fengler

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Helmut Herwartz

University of Kiel - Institute of Statistics and Econometrics ( email )

Olshausensrabe 40-60
D-24118 Kiel
Germany

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