Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets

21 Pages Posted: 12 Jan 2007

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 2008

Abstract

We provide a simple and intuitive measure of interdependence of asset returns and/or volatilities. In particular, we formulate and examine precise and separate measures of return spillovers and volatility spillovers. Our framework facilitates study of both non-crisis and crisis episodes, including trends and bursts in spillovers, and both turn out to be empirically important. In particular, in an analysis of sixteen global equity markets from the early 1990s to the present, we find striking evidence of divergent behavior in the dynamics of return spillovers vs. volatility spillovers: Return spillovers display a gently increasing trend but no bursts, whereas volatility spillovers display no trend but clear bursts.

Keywords: Asset Market, Asset Return, Stock Market, Emerging Market, Market Linkage, Financial Crisis, Herd Behavior, Contagion

JEL Classification: F30, G15, F36

Suggested Citation

Diebold, Francis X. and Yilmaz, Kamil, Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets (August 2008). PIER Working Paper No. 07-002, FRB of Philadelphia Working Paper No. WP 08-16, CFS Working Paper No. 2007/02, Available at SSRN: https://ssrn.com/abstract=956918 or http://dx.doi.org/10.2139/ssrn.956918

Francis X. Diebold (Contact Author)

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

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Kamil Yilmaz

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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