Refined Measures of Dynamic Connectedness based on TVP-VAR

Antonakakis, Nikolaos and Gabauer, David (2017): Refined Measures of Dynamic Connectedness based on TVP-VAR.

Abstract

In this study, we propose refined measures of dynamic connectedness based on a TVP-VAR approach, that overcomes certain shortcomings of the connectedness measures introduced originally by Diebold and Yilmaz (2009, 2012, 2014). We illustrate the advantages of the TVP-VAR-based connectedness approach with an empirical analysis on exchange rate volatility connectedness.

• Item Type: MPRA Paper
• Language: English
• Keywords: Dynamic connectedness; TVP-VAR; Exchange rate volatility
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

References

Antonakakis, N. (2012). Exchange Return Co-movements an Volatility Spillovers Before and After the Introduction of Euro. Journal of International Financial Markets, Institutions and Money, 22(5):1091-1109.

Antonakakis, N. and Badinger, H. (2014). International business cycle spillovers since the 1870s. Applied Economics, 46(30):3682-3694.

Antonakakis, N. and Vergos, K. (2013). Sovereign Bond Yield Spillovers in the Euro Zone During the Financial and Debt Crisis. Journal of International Financial Markets, Institutions and Money, 26:258-272.

Barunik, J., Kocenda, E., and Vacha, L. (2016). Asymmetric connectedness on the U.S. stock market: Bad and good volatility spillovers. Journal of Financial Markets, 27:55-78.

Bostanci, G. and Yilmaz, K. (2015). How connected is the global sovereign credit risk network? Koc University-TUSIAD Economic Research Forum Working Papers 1515, Koc University- TUSIAD Economic Research Forum.

Bubak, V., Kocenda, E., and Zikes, F. (2011). Volatility Transmission in Emerging European Foreign Exchange Markets. Journal of Banking & Finance, 35(11):2829-2841.

Diebold, F. X. and Yilmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal, 119(534):158-171.

Diebold, F. X. and Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1):57-66.

Diebold, F. X. and Yilmaz, K. (2014). On the network topology of variance decompositions: Measuring the connectedness of �nancial �rms. Journal of Econometrics, 182(1):119-134.

Diebold, F. X. and Yilmaz, K. (2015). Financial and Macroeconomic Connectedness: A Network Approach to Measurement and Monitoring. Oxford University Press, USA.

Diebold, F. X. and Yilmaz, K. (2015). Trans-Atlantic equity volatility connectedness: U.S. and European financial institutions, 2004-2014. Journal of Financial Econometrics, 14(1):81-127.

Kalman, R. E. (1960). A new approach to linear filtering and prediction problems. Journal of Basic Engineering, 82(1):35-45.

Koop, G. and Korobilis, D. (2014). A new index of financial conditions. European Economic Review, 71:101-116.

Koop, G., Pesaran, M. H., and Potter, S. M. (1996). Impulse response analysis in nonlinear multivariate models. Journal of Econometrics, 74(1):119-147.

McMillan, D. G. and Speight, A. E. (2010). Return and volatility spillovers in three euro exchange rates. Journal of Economics and Business, 62(2):79-93.

Narayan, P. K., Narayan, S., and K.P, P. (2014). Stock returns, mutual fund flows and spillover shocks. Pacific-Basin Finance Journal, 29(C):146-162.

Pesaran, H. H. and Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58(1):17-29.

Yilmaz, K. (2010). Return and volatility spillovers among the east Asian equity markets. Journal of Asian Economics, 21(3):304-313.

Zhou, X., Zhang, W., and Zhang, J. (2012). Volatility Spillovers Between the Chinese and World Equity Markets. Pacific-Basin Finance Journal, 20(2):247-270.