Abstract
This study analyzes the spillover effects of volatility in the Russian stock market. The paper applies the Diebold–Yilmaz connectedness methodology to characterize volatility spillovers between Russian assets. The spectral representation of the forecast variance decomposition proposed by Baruník and Křehlik is used to describe the connectivity in short-term (up to 5 days), medium-term (6–20 days) and long-term (more than 20 days) time frequencies. Additionally, two new augmented models are developed and applied to evaluate conditional spillover effects in different sectors of the Russian economy for the period from January 2012 to June 2021. It is shown that spillover effects increase significantly during political and economic crises and decrease during periods of relative stability. The rising of the overall level of spillovers in the Russian stock market coincides in time with the political crisis of 2014, the intensification of anti-Russian sanctions in 2018 and the fall in oil prices and the start of the pandemic in 2020. With the consideration of the augmented models it can be argued that a significant part of the long-term spillover effects on the Russian stock market may be caused by the influence of external economic and political factors. However, volatility spillovers generated by internal Russian idiosyncratic shocks are short-term. Thus, the proposed approach provides new information on the impact of external factors on volatility spillovers in the Russian stock market.
Highlights
The purpose of this paper is to develop new models to analyze volatility spillover across the Russian financial market using an empirical technique for the time and frequency domains
A large number of works have been devoted to the study of the cumulative effects of the interconnectedness of various market segments based on the analysis of the dynamics of volatility connectedness [2,25,29,30]
We investigate the problem of how volatility spillovers in the Russian stock market depend on different time frequencies
Summary
The purpose of this paper is to develop new models to analyze volatility spillover across the Russian financial market using an empirical technique for the time and frequency domains.Over the past 10 years, many studies have investigated volatility spillover, including the interdependence relationships between global and regional markets [1,2], different segments of commodity markets [3,4,5,6,7,8], such as crude oil and the stock markets [9,10,11,12], bonds [13], banks and financial institutions [14], foreign exchange markets and cryptocurrency [15,16,17,18,19,20].Such studies are aimed at assessing the relationship between the risk of investment in different asset classes, as well as the relationship between firms. Over the past 10 years, many studies have investigated volatility spillover, including the interdependence relationships between global and regional markets [1,2], different segments of commodity markets [3,4,5,6,7,8], such as crude oil and the stock markets [9,10,11,12], bonds [13], banks and financial institutions [14], foreign exchange markets and cryptocurrency [15,16,17,18,19,20]. A large number of works have been devoted to the study of the cumulative effects of the interconnectedness of various market segments based on the analysis of the dynamics of volatility connectedness [2,25,29,30]
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