Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach

This paper investigates stock returns volatility spillovers in emerging and developed markets (DMs) using multivariate-GARCH (MGARCH) models and their variants. In addition, we analyse the impacts of global financial crisis (2007–2009) on stock market volatility interactions and modify the BEKK-MGAR...

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Main Authors: Dahiru A. Bala, Taro Takimoto
Format: Article
Language:English
Published: Elsevier 2017-03-01
Series:Borsa Istanbul Review
Subjects:
Online Access:http://www.sciencedirect.com/science/article/pii/S2214845016301582
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spelling doaj-eb36a430194a4b6dac216788fbe9c24f2020-11-24T22:18:17ZengElsevierBorsa Istanbul Review2214-84502017-03-01171254810.1016/j.bir.2017.02.002Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approachDahiru A. Bala0Taro Takimoto1Federal Inland Revenue Service (FIRS), No. 20 Sokode Crescent, Zone 5, Wuse, Abuja, FCT, NigeriaGraduate School of Economics, Department of Economic Engineering, Kyushu University, 6-19-1 Hakozaki, Higashi-ku, 812-8581, Fukuoka City, JapanThis paper investigates stock returns volatility spillovers in emerging and developed markets (DMs) using multivariate-GARCH (MGARCH) models and their variants. In addition, we analyse the impacts of global financial crisis (2007–2009) on stock market volatility interactions and modify the BEKK-MGARCH-type models by including financial crisis dummies to assess their impact on volatilities and spillovers. Major findings reveal that correlations among emerging markets (EMs) are lower compared with correlations among DMs and increase during financial crises. Furthermore, we detect evidence of volatility spillovers and observe that own-volatility spillovers are higher than cross-volatility spillovers for EMs suggesting that shocks have not been substantially transmitted among EMs compared to DMs. We also find significant asymmetric behaviour in DMs while weak evidence is detected for EMs. Finally, the DCC-with-skewed-t density model provided improved diagnostics compared to other models partly due to its taking into account fat tails and skewed features often present in financial returns.http://www.sciencedirect.com/science/article/pii/S2214845016301582Stock markets volatilityCCC-MGARCHSpilloverBEKK-MGARCHDCC-with-skewed-tFinancial crises
collection DOAJ
language English
format Article
sources DOAJ
author Dahiru A. Bala
Taro Takimoto
spellingShingle Dahiru A. Bala
Taro Takimoto
Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach
Borsa Istanbul Review
Stock markets volatility
CCC-MGARCH
Spillover
BEKK-MGARCH
DCC-with-skewed-t
Financial crises
author_facet Dahiru A. Bala
Taro Takimoto
author_sort Dahiru A. Bala
title Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach
title_short Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach
title_full Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach
title_fullStr Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach
title_full_unstemmed Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach
title_sort stock markets volatility spillovers during financial crises: a dcc-mgarch with skewed-t density approach
publisher Elsevier
series Borsa Istanbul Review
issn 2214-8450
publishDate 2017-03-01
description This paper investigates stock returns volatility spillovers in emerging and developed markets (DMs) using multivariate-GARCH (MGARCH) models and their variants. In addition, we analyse the impacts of global financial crisis (2007–2009) on stock market volatility interactions and modify the BEKK-MGARCH-type models by including financial crisis dummies to assess their impact on volatilities and spillovers. Major findings reveal that correlations among emerging markets (EMs) are lower compared with correlations among DMs and increase during financial crises. Furthermore, we detect evidence of volatility spillovers and observe that own-volatility spillovers are higher than cross-volatility spillovers for EMs suggesting that shocks have not been substantially transmitted among EMs compared to DMs. We also find significant asymmetric behaviour in DMs while weak evidence is detected for EMs. Finally, the DCC-with-skewed-t density model provided improved diagnostics compared to other models partly due to its taking into account fat tails and skewed features often present in financial returns.
topic Stock markets volatility
CCC-MGARCH
Spillover
BEKK-MGARCH
DCC-with-skewed-t
Financial crises
url http://www.sciencedirect.com/science/article/pii/S2214845016301582
work_keys_str_mv AT dahiruabala stockmarketsvolatilityspilloversduringfinancialcrisesadccmgarchwithskewedtdensityapproach
AT tarotakimoto stockmarketsvolatilityspilloversduringfinancialcrisesadccmgarchwithskewedtdensityapproach
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