Volatility spillover from the US to international stock markets: A heterogeneous volatility spillover GARCH model |
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| Authors: | Yudong Wang Zhiyuan Pan Chongfeng Wu |
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| Institution: | 1. School of Economics and Management, Nanjing University of Science and Technology, Nanjing 210094, China;2. Institute of Chinese Financial Studies, Southwestern University of Finance and Economics, Collaborative Innovation Center of Financial Security, Chengdu 611130, China;3. Antai College of Economics and Management, Shanghai Jiao Tong University, China |
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| Abstract: | A recent study by Rapach, Strauss, and Zhou (Journal of Finance, 2013, 68(4), 1633–1662) shows that US stock returns can provide predictive content for international stock returns. We extend their work from a volatility perspective. We propose a model, namely a heterogeneous volatility spillover–generalized autoregressive conditional heteroskedasticity model, to investigate volatility spillover. The model specification is parsimonious and can be used to analyze the time variation property of the spillover effect. Our in‐sample evidence shows the existence of strong volatility spillover from the US to five major stock markets and indicates that the spillover was stronger during business cycle recessions in the USA. Out‐of‐sample results show that accounting for spillover information from the USA can significantly improve the forecasting accuracy of international stock price volatility. |
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| Keywords: | BEKK‐GARCH business cycle forecasting HVS‐GARCH volatility spillover |
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