Asymmetric Spillovers Between the Stock Risk Series: Case of CESEE Stock Markets

Abstract

Asymmetric behaviour of stock market variables is nothing new in theory and practice. However, the methodology which captures this behaviour should be developed and used properly, so that potential investors can benefit from it in the best possible way. This chapter deals with asymmetric spillovers between risk series of selected Central Eastern and South-Eastern European markets. There are several contributions to the literature. Firstly, the chapter gives an extensive and exhausting literature overview so that the advantages and shortfalls previous studies can be observed. This is helpful for future research and empirical applications. Secondly, this chapter deals with 15 CESEE at once, so that the full potential of the mentioned markets can be exploited. Thirdly, the empirical part of the analysis extensively deals with the simulation of investment strategies which are based on the results of the estimation, so that (potential) investors could obtain insights into the usefulness of the applied methodology. The methodology consists of VAR (vector autoregression) modelling with the inclusion of the spillover index methodology Diebold Yilmaz (Econ J 119(534):158–171 [36]], (Int J Forecast 28(1):57–66 [38]) and the extension to asymmetric spillovers in Baruník et al. (J Financial Markets 27:55–78 [9]). The results of the analysis indicate that using the output from the asymmetric spillover behaviour, the investor could obtain better portfolio risk and return compared to the strategies when such information is not included.