One-way Spillover Research Articles

Carbon Futures Volatility Forecasting: The Role of Spillover Effect from Crude Oil Futures Market

Accurate prediction of the volatility of EU carbon emission quota futures is an important foundation for pricing derivative products, portfolio allocation, and risk management. On the basis of the GARCH-MIDAS model involving mixed frequency data sampling, this article considers the spillover effect of Brent crude oil futures market on carbon quota futures market, and incorporates the spillover effect into the prediction of carbon quota futures volatility to construct the VS-GARCH-MIDAS model. Using the monthly realized volatility of Brent crude oil futures as a proxy variable to reflect spillover effects, empirical results indicate the existence of a one-way spillover effect of Brent crude oil futures market on carbon quota futures market. Moreover, the GARCH-MIDAS model considering spillover effects has better in sample fitting performance and stronger out of sample predictive ability than the original GARCH-MIDAS model. To ensure the robustness of this conclusion, this paper also investigates the impact of spillover effects generated by WTI crude oil futures on the volatility of EUA futures, and concludes that the GARCH-MIDAS model considering spillover effects can improve the prediction accuracy of EUA futures volatility.

Exploring Volatility and Spillover Effects between African Sovereign Bond Markets and Global Long-Term Interest Rates

The study investigated the existence of volatility and spillover effects between sovereign bond returns of South Africa and Ethiopia and the world’s long-term interest rate using multivariate generalized autoregressive conditional heteroskedasticity model. The results showed that volatility from the long-term world interest rate negatively affects the Ethiopian sovereign bond market. The results also showed a one-way spillover from South Africa's market to the U.S. long-term market, then from the U.S. to Ethiopia's market, and further from Ethiopia's to South Africa's market. However, no bidirectional spillover was observed within these markets. Besides, both African markets display high volatility persistence. Besides, the markets have a weak or insignificant correlation with the world’s long-term interest rate. Volatility in the markets is significantly affected by their respective past shocks or volatilities. Finally, it has forwarded policy inputs that should be tailored to the specific economic and financial context of each country.

A Bayesian analysis based on multivariate stochastic volatility model: evidence from green stocks.

Green stocks are companies environmental protective and friendly. We test Green stock index in Shanghai Stock Exchange and China Securities Index as safe-havens for global investors. Suitable multivariate-SV model and Bayesian method are used to estimate the spillover effect between different assets among local and global markets. We choose multivariate volatility model because it can efficiently simulate the spillover effect by using machine learning MCMC method. The results show that the Environmental Protection Index (EPI) of Shanghai Stock Exchange (SSE) and China Securities Index (CSI) have no significant volatility spillover from Shanghai Stock index, S &P index, gold price, oil future prices of USA and China. During COVID-19 pandemic, we find Green stock index is a suitable safe-haven with low volatility spillover. Green stock indexes has a strongly one-way spillover to the crude oil future price. Environmentally friendly investor can use diversity green assets to provide a low risk investment portfolio in EPI stock market. The DCGCt-MSV model using machine learning of MCMC method is accurate and outperform others in Bayes parameter estimation.

Complex dynamics of R&D competition with one-way spillover based on intellectual property protection

In order to study the R&D competition with one-way spillover based on intellectual property protection, a R&D-Cournot duopoly game between a foreign-invested enterprise and a domestic-invested enterprise is set up in this paper. It is discussed the local stabilities near all the equilibrium points, and it is diplayed the stability conditions of each equilibrium point. Regarding the dynamical behaviors of the model, we mainly carry out our research from two aspects. The first issue we concerned about is the dynamical behaviors when there is only one enterprise engaged in R&D. We found that the coordinate axes are invariant sets, on which the dynamical behaviors are governed by two different one-dimensional maps. The dynamical behaviors of both enterprises engaged in R&D is another topic of our research. We find that not only the local bifurcations can cause the sudden change of dynamics, but also the global bifurcations can lead to the “death” of attractors or the disappearance of coexistence of multiple attractors. Moreover, the stability exchange between different attractors caused by the transcritical bifurcation is also common in our model. The stability and evolutionary pattern of the kinetic evolutionary behavior revealed with the change of the adjustment parameters is closely related to the long-term effects of strengthening intellectual property protection. It is of high practical value to study the impact of intellectual property protection intensity on R&D investment of high-tech enterprises.

The Impact of International Crude Oil Prices on Energy Stock Prices: Evidence From China

Based on a vector autoregressive model and a dynamic conditional correlation generalized autoregressive conditional heteroskedasticity model, this study explores the relation between the international crude oil market and the Chinese energy stock market. The findings suggest a positive one-way spillover effect of international crude oil returns on China’s energy stock returns. Furthermore, this correlation between the two markets is time varying.

COVID-19 and time-frequency connectedness between green and conventional financial markets

Against the backdrop of the exponentially growing trend in green finance investments and the calls for green recovery in the post-COVID world, this study presents the time-frequency connectedness between green and conventional financial markets by using the spillover models of Diebold and Yilmaz (2012) and Baruník and Křehlík (2018). Covering a sample period from January 01, 2008, to July 31, 2020, we aim to explore the dynamics of connectedness between conventional and green investments in fixed income, equity, and energy markets. Additionally, we determine the role of market-wide uncertainty in altering the connectedness structure by performing a subsample analysis for the ongoing COVID-19 pandemic crisis period. Our results show that competing energy investments are not connected, and there is only one-way spillovers from the conventional bonds in the fixed-income investments. Additionally, we observe a low (high) intergroup connectedness for conventional (green) investments. Moreover, the frequency-based analysis shows that connectedness between these competing markets is more pronounced during the short-run. The subsample analysis for the pandemic crisis period shows similar results except for the disconnection between bond markets in the short-run frequency. Our time-varying analysis shows peaks and troughs in the connectedness between climate-friendly and conventional investments that suggest different global events such as the Eurozone Debt Crisis and Shale Oil Revolution drives the association between alternate investments. Similarly, we observe an enhanced connectedness during the recent COVID-19 period, suggesting that financial stability would be a significant factor in determining the smooth transition to green investments.

STACKELBERG GAME, VERTICAL RELATIONS AND R&D INVESTMENTS: ARE THERE FIRST-MOVER ADVANTAGES?

This paper studies a Stackelberg game among the downstream firms in a vertical industry where one-way R&D spillovers occur, from the leader to the follower. When the upstream market is perfectly competitive under certain conditions the standard first-mover advantages disappear. When we move to the upstream monopolistic case we find that despite the existence of spillovers in most of the cases, the leader gets higher profits and thus first-mover advantages are reinstated due to the price setting behavior of the upstream firm. It therefore challenges to some extent the “naive” idea that under one-way spillovers there are no incentives for early movers.

Dynamic Cross-Market Volatility Spillover Based on MSV Model: Evidence from Bitcoin, Gold, Crude Oil, and Stock Markets

This paper examines the spillover effect between bitcoin, gold, crude oil, and major stock markets by using the MSV model with dynamic correlation and Granger causality. The empirical results of the DC-GC-MSV model are logically correct and convergent. The DIC test result has proved that the DC-GC-MSV model is better and more accurate. Bitcoin has no significant Granger causality spillover effect than other assets. As a safe haven product for stock assets, gold price has one-way spillover effect from stock market volatility. Moreover, crude oil has the highest correlation with the stock market. In the recent COVID-19 epidemic and the sluggish economic environment, investors need to consider a balanced asset allocation among low-correlation assets, medium-correlation assets, and high-correlation assets to reduce risks.

A Dynamic Stackelberg–Cournot Duopoly Model with Heterogeneous Strategies through One-Way Spillovers

Many works studied on complex dynamics of Cournot or Stackelberg games, but few references discussed a dynamic game model combined with the Cournot game phase and Stackelberg game phase. Under the assumption that R&D spillovers only flow from the R&D leader to the R&D follower, a duopoly Stackelberg–Cournot game with heterogeneous expectations is considered in this paper. Two firms with different R&D capabilities determine their R&D investments sequentially in the Stackelberg R&D phase and make output decisions simultaneously in the Cournot production phase. R&D spillovers, R&D investments, and technological innovation efficiency are introduced in our model. We find that: (i) the boundary equilibrium of the dynamic Stackelberg–Cournot duopoly system, where two players adopt boundedly rational expectation and naïve expectation, respectively, is unstable if the Nash equilibrium of the system is strictly positive. (ii) The Nash equilibrium of the dynamic Stackelberg–Cournot duopoly system, where two players adopt boundedly rational expectation and naïve expectation, respectively, is locally asymptotically stable only if the model parameters meet certain conditions. Especially, results indicate that small value of R&D spillovers or big value of output adjustment speed may yield bifurcations or even chaos. Numerical simulations are performed to exhibit maximum Lyapunov exponents, bifurcation diagrams, strange attractors, and sensitive dependence on initial conditions to verify our findings. It is also shown that the chaotic behaviors can be controlled with the state variables feedback and parameter variation method.

Dynamic correlation and volatility spillover between the stock markets of Shenzhen and Hong Kong

Considering the two-way spillovers of market information, this paper establishes multivariate GARCH models to study the impact of Shenzhen-Hong Kong Stock Connect (SHSC) on the complex co-movements relation between the stock markets of Shenzhen and Hong Kong from the aspects of dynamic correlation and volatility spillover. On the one hand, a t-Copula DCC-GARCH model which combines the Copula function with the DCC-GARCH model is established to model the return rate series of stock index in different stages, and the characteristic that the dynamic correlation coefficient changes with time is analyzed emphatically. On the other hand, a BEKK-GARCH model is established to measure the changes of the volatility spillover effect between the stock markets in Shenzhen and Hong Kong. The results show that the opening of SHSC has gradually increased the dynamic correlation coefficient of the two stock markets, and the openness degree of the two stock markets has increased. At the same time, the volatility spillovers of stock markets in Shenzhen and Hong Kong have shifted from one-way spillover to two-way spillovers, which indicates that the SHSC mechanism has strengthened the correlation degree and has improved the ability of risk spillover in the two stock markets.

Endogenous heterogeneity in duopoly with deterministic one-way spillovers

This paper examines the standard symmetric two-period R&D duopoly model, but with a deterministic one-way spillover structure. Though the two firms are ex-ante identical, one obtains a unique pair of asymmetric equilibria of R&D investments, leading to inter-firm heterogeneity in the industry, in R&D roles as well as in unit costs. We analyze the impact of a change in the spillover parameter and R&D costs on firms’ levels of R&D and profits. We find that higher spillovers need not lead to lower R&D investments for both firms. In addition, equilibrium profits may improve due to the presence of spillovers, and it may be advantageous to be the R&D imitator rather than the R&D innovator.

Intergenerational transmission of human capital: Is it a one-way street?

Studies on the intergenerational transmission of human capital usually assume a one-way spillover from parents to children. However, children may also affect their parents’ human capital. Using exogenous variation in education, arising from a Swedish compulsory schooling reform in the 1950s and 1960s, we address this question by studying the causal effect of children's schooling on their parents’ longevity. We first replicate previous findings of a positive and significant cross-sectional relationship between children's education and their parents’ longevity. Our instrumental variables estimates are not statistically different from zero. However, they hide substantial heterogeneity by the gender of the child and the parent; female schooling is found to affect longevity of fathers and especially those from low socio-economic background. Taken together, our results point to the importance of daughters’ schooling for parental health and to the importance of considering heterogeneous impacts.

Empirical analysis of spillover effects between China's financial markets based on five-variable VAR-GARCH-BEKK model

In order to analyse the spillover effect between China’s financial markets comprehensively, this paper selects monetary market, exchange market, stock market, bond market and commodity futures market and uses five-variable VAR(1)-GARCH(1,1)-BEKK model to carry out empirical analysis of mean and fluctuating spillover effect between above five financial markets. The result of empirical analysis shows: Firstly, in the aspect of mean spillover effect, except exchange market having no spillover effect on monetary market and commodity futures market as well as monetary market having no spillover effect on stock market, other financial markets all have one-way or double-way spillover effect on each other. Secondly, in the aspect of fluctuating spillover effect, except exchange market and bond market having one-way spillover effect on monetary market as well as stock market and bond market having one-way spillover effect on monetary market, other markets all have double-way spillover effect on each other. Accordingly, this paper thinks that government should prevent the huge fluctuation in financial market, make supervision on financial markets and take actions to prevent risk while stabilising the macro-economy, which are beneficial to release the degree of accumulation of financial risk in China.

Endogenous R&D symmetry in linear duopoly with one-way spillovers

A duopoly model of cost reducing R&D-Cournot market competition is extended to encompass endogenous timing of R&D investments. Under the assumption that R&D spillovers are zero under simultaneous choices of R&D and only flow from the R&D leader to the follower under sequential choices, sequential and simultaneous play at the R&D stage are compared in order to assess the role of technological externalities in stimulating or attenuating endogenous firm asymmetry. The only timing structure of the R&D stage sustainable as subgame–perfect Nash equilibrium involves simultaneous play and thus zero spillovers.

Endogenous R&D Symmetry in Linear Duopoly with One-way Spillovers

A duopoly model of cost reducing R&D-Cournot competition is extended to study the endogenous timing of R&D strategic investment. Under the assumption that R&D spillovers only flow from the R&D leader to the follower, sequential and simultaneous play at the R&D stage are compared, in order to assess the role of technological exter-nalities in stimulating or attenuating endogenous firm asymmetry. The only timing structure of the R&D stage sustainable as subgame-perfect Nash equilibrium involves simultaneous play and zero spillovers.

One-Way Spillovers, Endogenous Innovator/Imitator Roles, and Research Joint Ventures

We consider a two-period duopoly characterized by a one-way spillover structure in process R&D and a very broad specification of product market competition. We show that a priori identical firms always engage in different levels of R&D, at equilibrium, thus giving rise to an innovator/imitator configuration and ending up with different sizes. We also provide a general analysis of the social benefits of, and firms' incentive for, forming research joint ventures. Another contribution is methodological, illustrating how submodularity (R&D decisions are strategic substitutes) can be exploited to provide a general analysis of a R&D game. Journal of Economic Literature Classification Numbers: C72, L13, O31.

Effects of One-Way Spillovers on Market Shares, Industry Price, Welfare, and R & D Cooperation

With one-way spillovers, the standard symmetric two-period R&D model leads to an asymmetric equilibrium only, with endogenous innovator and imitator. We show how R&D decisions and measures of firm heterogeneity - market shares, R&D shares, and profits - depend on spillovers and on R&D costs. While a joint lab always improves on consumer welfare, it yields higher profits, cost reductions and social welfare only under extra assumptions, beyond those required with multi-directional spillovers. Finally, the novel issue of optimal R&D cartels (with an endogenous spillover parameter) is addressed. In particular, the latter can be zero under some conditions.