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

Dahiru A. Bala, Taro Takimoto

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9 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)25-48
Number of pages24
JournalBorsa Istanbul Review
Volume17
Issue number1
DOIs
Publication statusPublished - Mar 2017

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All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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