International market links and volatility transmission |
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Authors: | Valentina Corradi Walter Distaso Marcelo Fernandes |
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Affiliation: | 1. Department of Economics, University of Warwick, Social Studies Building, Coventry CV4 7AL, United Kingdom;2. Imperial College Business School, South Kensington Campus, London SW7 2AZ, United Kingdom;3. School of Economics and Finance, Queen Mary University of London, Mile End, London E1 4NS, United Kingdom;4. São Paulo School of Economics, Getulio Vargas Foundation, Rua Itapeva 474, São Paulo 01332-000, Brazil |
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Abstract: | This paper gauges volatility transmission between stock markets by testing conditional independence of their volatility measures. In particular, we check whether the conditional density of the volatility changes if we further condition on the volatility of another market. We employ nonparametric methods to estimate the conditional densities and model-free realized measures of volatility, allowing for both microstructure noise and jumps. We establish the asymptotic normality of the test statistic as well as the first-order validity of the bootstrap analog. Finally, we uncover significant volatility spillovers between the stock markets in China, Japan, UK and US. |
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