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Risk Contagion among International Stock Markets

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Author

Summary, in English

Abstract in Undetermined
We develop a stochastic volatility model with jumps in returns and volatility to analyze the risk spillover from the U.S. market and the regional market to a number of European countries' equity markets. The key advantage of this approach compared to the earlier approaches is that it enables us to identify jumps and investigate spillover of extreme events across borders. We find that a large part of the jumps in the local markets are due to the U.S. market and the regional market. The U.S. contribution to the variances is in general below the contribution from the regional market. In general, we observe an increasing integration during the last two decades, which, to some extent, can be related to the advancement of the European Union. Furthermore, we show that the identification of the jumps can be used as a useful signal for portfolio reallocation.

Publishing year

2011

Language

English

Pages

22-38

Publication/Series

Journal of International Money and Finance

Volume

30

Issue

1

Document type

Journal article

Publisher

Elsevier

Topic

  • Economics

Keywords

  • Spillover
  • Jump
  • Stochastic volatility
  • Wavelet
  • Markov Chain Monte Carlo
  • Integration

Status

Published

ISBN/ISSN/Other

  • ISSN: 0261-5606