Reexamining the Time-varying Volatility Spillover Effects: A Markov Switching Causality Approach
Tingguo Zheng, Haomiao Zuo
North American Journal of Economics and Finance
#002202 20131014 (published) Views:131
This paper intends to examine the volatility spillover effect betweenselective developed markets including U.S., U.K., Germany, Japanand Hong Kong over the sample period from 1996 to 2011. Weintroduce a Markov switching causality method to model thepotential instability of volatility spillover relationships over mar-ket tranquil or turmoil periods. This method is more flexible as noprior information on the changing points or size of sample win-dow is needed. From the empirical results, we find the evidenceof the existence of spillover effects among most markets, and thebilateral volatility spillover effects are more prominent over tur-moil or crisis episodes, especially during Asia crisis and subprimemortgage crisis periods. Moreover, the distinct role of each marketis also investigated.
JEL-Codes: C32, C53, C58
Keywords: Volatility spillover, Markov switching, Granger causality, Range