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Measuring Financial Asset Return and Volatility Spillovers, With Application to Global Equity Markets

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  • Francis X. Diebold
  • Kamil Yilmaz

Abstract

We provide a simple and intuitive measure of interdependence of asset returns and/or volatilities. In particular, we formulate and examine precise and separate measures of return spillovers and volatility spillovers. Our framework facilitates study of both non-crisis and crisis episodes, including trends and bursts in spillovers, and both turn out to be empirically important. In particular, in an analysis of nineteen global equity markets from the early 1990s to the present, we find striking evidence of divergent behavior in the dynamics of return spillovers vs. volatility spillovers: Return spillovers display a gently increasing trend but no bursts, whereas volatility spillovers display no trend but clear bursts.

Suggested Citation

  • Francis X. Diebold & Kamil Yilmaz, 2008. "Measuring Financial Asset Return and Volatility Spillovers, With Application to Global Equity Markets," NBER Working Papers 13811, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13811
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    References listed on IDEAS

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    • G1 - Financial Economics - - General Financial Markets

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