Volatility Spillover Effects in European Equity Markets

Research output: Working paperDiscussion paperOther research output

392 Downloads (Pure)

Abstract

This paper quantifies the magnitude and time-varying nature of volatility spillovers from the aggregate European (EU) and US market to 13 local European equity markets.I develop a shock spillover model that decomposes local unexpected returns into a country speciffic shock, a regional European shock, and a global shock from the US.The innovation of the model is that regime switches in the shock spillover parameters are accounted for.I find that these regime switches are both statistically and economically important.While both the EU and US shock spillover intensity has increased over the 1980s and 1990s, the rise is more pronounced for EU spillovers.For most countries, the largest increases in shock spillover intensity are situated in the second half of 1980s and the first half of the 1990s.Increased trade integration, equity market development, and low inflation are shown to have contributed to the increase in EU shock spillover intensity.Finally, I find some evidence for contagion from the US market to a number of local European equity markets during periods of high world market volatility.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages53
Volume2003-114
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper
Volume2003-114

Fingerprint

Volatility spillover
Equity markets
Spillover effects
Spillover
Regime switches
World market
Market volatility
Market development
Contagion
Time-varying
Inflation
Trade integration
Innovation

Keywords

  • ems
  • volatility
  • equity markets
  • monetary integration
  • spillover

Cite this

Baele, L. (2003). Volatility Spillover Effects in European Equity Markets. (CentER Discussion Paper; Vol. 2003-114). Tilburg: Finance.
Baele, L. / Volatility Spillover Effects in European Equity Markets. Tilburg : Finance, 2003. (CentER Discussion Paper).
@techreport{dae0be494f32433e822b1c1eb900773f,
title = "Volatility Spillover Effects in European Equity Markets",
abstract = "This paper quantifies the magnitude and time-varying nature of volatility spillovers from the aggregate European (EU) and US market to 13 local European equity markets.I develop a shock spillover model that decomposes local unexpected returns into a country speciffic shock, a regional European shock, and a global shock from the US.The innovation of the model is that regime switches in the shock spillover parameters are accounted for.I find that these regime switches are both statistically and economically important.While both the EU and US shock spillover intensity has increased over the 1980s and 1990s, the rise is more pronounced for EU spillovers.For most countries, the largest increases in shock spillover intensity are situated in the second half of 1980s and the first half of the 1990s.Increased trade integration, equity market development, and low inflation are shown to have contributed to the increase in EU shock spillover intensity.Finally, I find some evidence for contagion from the US market to a number of local European equity markets during periods of high world market volatility.",
keywords = "ems, volatility, equity markets, monetary integration, spillover",
author = "L. Baele",
note = "Pagination: 53",
year = "2003",
language = "English",
volume = "2003-114",
series = "CentER Discussion Paper",
publisher = "Finance",
type = "WorkingPaper",
institution = "Finance",

}

Baele, L 2003 'Volatility Spillover Effects in European Equity Markets' CentER Discussion Paper, vol. 2003-114, Finance, Tilburg.

Volatility Spillover Effects in European Equity Markets. / Baele, L.

Tilburg : Finance, 2003. (CentER Discussion Paper; Vol. 2003-114).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Volatility Spillover Effects in European Equity Markets

AU - Baele, L.

N1 - Pagination: 53

PY - 2003

Y1 - 2003

N2 - This paper quantifies the magnitude and time-varying nature of volatility spillovers from the aggregate European (EU) and US market to 13 local European equity markets.I develop a shock spillover model that decomposes local unexpected returns into a country speciffic shock, a regional European shock, and a global shock from the US.The innovation of the model is that regime switches in the shock spillover parameters are accounted for.I find that these regime switches are both statistically and economically important.While both the EU and US shock spillover intensity has increased over the 1980s and 1990s, the rise is more pronounced for EU spillovers.For most countries, the largest increases in shock spillover intensity are situated in the second half of 1980s and the first half of the 1990s.Increased trade integration, equity market development, and low inflation are shown to have contributed to the increase in EU shock spillover intensity.Finally, I find some evidence for contagion from the US market to a number of local European equity markets during periods of high world market volatility.

AB - This paper quantifies the magnitude and time-varying nature of volatility spillovers from the aggregate European (EU) and US market to 13 local European equity markets.I develop a shock spillover model that decomposes local unexpected returns into a country speciffic shock, a regional European shock, and a global shock from the US.The innovation of the model is that regime switches in the shock spillover parameters are accounted for.I find that these regime switches are both statistically and economically important.While both the EU and US shock spillover intensity has increased over the 1980s and 1990s, the rise is more pronounced for EU spillovers.For most countries, the largest increases in shock spillover intensity are situated in the second half of 1980s and the first half of the 1990s.Increased trade integration, equity market development, and low inflation are shown to have contributed to the increase in EU shock spillover intensity.Finally, I find some evidence for contagion from the US market to a number of local European equity markets during periods of high world market volatility.

KW - ems

KW - volatility

KW - equity markets

KW - monetary integration

KW - spillover

M3 - Discussion paper

VL - 2003-114

T3 - CentER Discussion Paper

BT - Volatility Spillover Effects in European Equity Markets

PB - Finance

CY - Tilburg

ER -

Baele L. Volatility Spillover Effects in European Equity Markets. Tilburg: Finance. 2003. (CentER Discussion Paper).