Characterizing the Volatility Transmission across International Stock Markets

Abstract

The present study attempts to track the transmission of volatility across major international stock markets over a span of 20 years, which includes both crisis (contagion form) and non-crisis periods. It also investigates whether global transmission of volatility follows a pattern. The study uses bi-variate EGARCH model in order to capture spillover between a pair of stock markets and the estimation window is one year with a sliding frequency of one quarter. The results show that, there is a spillover of volatility between international stock markets at all times. Results also indicate that in almost all cases, the pattern of spillover is non-random. Finally, the study characterizes the spillover pattern between international stock markets using suitable theoretical distributions.