The Role of Volatility Regimes on Volatility Transmission Patterns

Posted: 31 May 2011

See all articles by Enrique Salvador

Enrique Salvador

Universitat Jaume I - Department of Finance and Accounting

Nikos K. Nomikos

Cass Business School, City University London

Date Written: May 27, 2011

Abstract

This paper investigates volatility transmission patterns between the US and Eurozone stock markets differentiating between low and high volatility periods which tend to be related with international crisis. Our approach let us distinguish the spillover intensities between markets in calm and crisis periods and also tests for a potential increase of market comovements during these last periods. State-Dependent Volatility Impulse-Response Functions (SD-VIRF) are also introduced considering different responses of stock markets during detected periods of high and low volatilities. The results show that volatility spillovers intensities increase during turmoil periods and it is also find an increase of conditional correlation during times of market jitters.

Keywords: regime-swithcing, volatility, spillover effects, state-dependent volatility response functions, correlation

Suggested Citation

Salvador, Enrique and Nomikos, Nikos K., The Role of Volatility Regimes on Volatility Transmission Patterns (May 27, 2011). Available at SSRN: https://ssrn.com/abstract=1854403 or http://dx.doi.org/10.2139/ssrn.1854403

Enrique Salvador (Contact Author)

Universitat Jaume I - Department of Finance and Accounting ( email )

Castellon
E-12071 Castello de la Plana, Castellón de la Plana 12071
Spain

Nikos K. Nomikos

Cass Business School, City University London ( email )

London, EC2Y 8HB
Great Britain

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