Variance-Based Spillover Analysis between Stock Markets: A Time Varying Parameter Approach

• Authors: A. Özün , H. Ertuğrul
• Languages of publication: EN

Abstracts

EN

This paper proposes a variance-based spillover impact analysis embedded with a dynamic Kalman filtering in order to detect a causality relationship from the US stock markets into the European and emerging stock markets during the financial crisis. It has mainly two new contributions to the literature. Firstly, it uses variance rather than returns to analyze the spillover impact between the markets. Secondly, and more importantly, it is an econophysics research as it examines causality relationship with the Kalman filtering in physics. We calculate time-dependent conditional stock market variances for Dow Jones, DAX, FTSE, RTS (Russia), and BIST (Turkey) by employing SWARCH model. The empirical analysis examines the causal relationship between Dow Jones into the other stock markets employing Granger causality tests in order to detect the direction of volatility spillover relationship. As an embedded analysis, we follow a dynamic approach by using the Kalman filtering as a time varying parameter model to depict the time varying interaction between stock markets volatilities. The empirical results point out unidirectional Granger causality from Dow Jones to the other markets indicating the spillover impact of the volatility starting from the US markets and expanded into the world in the latest global crisis.

Keywords

EN

89.65.Gh; 05.10.-a

Discipline

• 05.10.-a: Computational methods in statistical physics and nonlinear dynamics(see also 02.70.-c in mathematical methods in physics)
• 89.65.Gh: Economics; econophysics, financial markets, business and management(for economic issues regarding production and use of renewable energy, see 88.05.Lg)

• Publisher: Institute of Physics, Polish Academy of Sciences
• Journal: Acta Physica Polonica A
• Year: 2014
• Volume: 125
• Issue: 1
• Pages: 155-157

Dates

published

2014-01

received

2013-08-26

Contributors

author

A. Özün

• Bradford University, School of Management, Emm Ln, Bradford, West Yorkshire BD9 4JL, United Kingdom

author

H. Ertuğrul

• Undersecretariat of Treasury, Republic of Turkey, Inonu Bulvari No:36, 06510 Emek, Ankara, Turkey

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Identifiers

DOI

10.12693/APhysPolA.125.155