Volatility transmission in global financial markets |
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| Affiliation: | 1. University of Zurich, Department of Banking and Finance, Plattenstrasse 14, 8032 Zurich, Switzerland;2. Deka Investment GmbH, Quantitative Products, Mainzer Landstr. 16, 60325 Frankfurt/Main, Germany;1. Department of Finance and International Business, Fu Jen Catholic University, No. 510, Jhongjheng Rd., Sinjhuang Dist., New Taipei City 24205, Taiwan, ROC;2. Department of Finance, National Taiwan University, No. 1, Sec. 4, Roosevelt Rd., Taipei City 10617, Taiwan, ROC;1. Hanken School of Economics, Department of Finance and Statistics, Arkadiankatu, 22, 00101 Helsinki, Finland;2. Durham University Business School, Mill Hill Lane, Durham DH1 3LB, UK |
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| Abstract: | This paper considers the transmission of volatility in global foreign exchange, equity and bond markets. Using a multivariate GARCH framework which includes measures of realised volatility as explanatory variables, significant volatility and news spillovers are found to occur on the same trading day between Japan, Europe, and the United States. All markets exhibit significant degrees of asymmetry in terms of the transmission of volatility associated with good and bad news. There are also strong links between diffusive volatilities in all three markets, whereas jump activity is only important within the equity markets. The results of this paper deepen our understanding of how news and volatility are propagated through global financial markets. |
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