Abstract
We propose to employ the multivariate extension of GARCH-type models to assess the systematic risk and joint volatility behaviors of the U.S. and three European financial markets (Andersen, Bollerslev & Diebold, 2010). Thus, we can assess the co-movements of the previous financial markets as well as the joint behavior of their respective volatilities (i.e. systematic risk). Moreover, the resulting conditional variance and covariance metrics allow for handling volatility spillovers (i.e. contagion risk in terms of transmitting volatility shocks from one market place to another market place). Indeed, results highlight the unprecedented high systematic risk levels (i.e. joint increased volatility levels) as well as high contagion risk (i.e. volatility spillover) during the subprime mortgage market crisis. The transmission process of volatility shocks reveals to be simultaneous across financial markets due to a strong arbitrage activity and electronic trading practices.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
