Linkages Among Asset Markets in the United States: Tests in a Bivariate GARCH Framework
November 1, 1999
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Summary
This paper develops a bivariate GARCH model that allows for time-varying conditional correlations and simultaneous testing of two Granger-causal linkages: the impact of return volatility in a market on intermarket correlation and the impact of return volatility in one market on the volatility of another. Using daily data from stock, bond, currency, and commodity markets in the United States, the paper finds evidence of each form of linkage. Furthermore, the conditional correlations change over time and exhibit considerable persistence. The estimated time-varying conditional correlations provide insight into the nature of the stock market crash of 1987.
Subject: Currency markets, Financial markets, Financial sector policy and analysis, Revenue administration, Securities markets, Small taxpayer office, Spillovers, Stock markets
Keywords: asset volatility, conditional correlation, covariance matrix, cross-asset correlation, Currency markets, GARCH model, Global, Granger causality, Logistic Exponential GARCH, market mechanism, Securities markets, Small taxpayer office, spillover coefficient, Spillovers, Stock markets, volatility spillover, WP
Pages:
25
Volume:
1999
DOI:
Issue:
158
Series:
Working Paper No. 1999/158
Stock No:
WPIEA1581999
ISBN:
9781451857566
ISSN:
1018-5941
