Jump Spillover in International Equity Markets

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Abstract

In this article we study jump spillover effects between a number of country equity indexes. In order to identify the latent historical jumps of each index, we use a Bayesian approach to estimate a jump-diffusion model on each index. We look at the simultaneous jump intensities of pairs of countries and the probabilities that jumps in large countries cause jumps or unusually large returns in other countries. In all cases, we find significant evidence of jump spillover. In addition, we find that jump spillover seems to be particularly large between countries that belong to the same regions and have similar industry structures, whereas, interestingly, the sample correlations between the countries have difficulties in capturing the jump spillover effects.

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Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • systemic risk, stochastic volatility, spillover, Markov chain Monte Carlo, event risk, jump-diffusion model
Original languageEnglish
Pages (from-to)167-203
JournalJournal of Financial Econometrics
Volume4
Issue number2
Publication statusPublished - 2006
Publication categoryResearch
Peer-reviewedYes