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A practical multivariate approach to testing volatility spillover

Leong, S. H. & Urga, G. ORCID: 0000-0002-6742-7370 (2023). A practical multivariate approach to testing volatility spillover. Journal of Economic Dynamics and Control, 153, article number 104694. doi: 10.1016/j.jedc.2023.104694


We propose an asymptotic N(0, 1) inferential strategy to test for volatility spillover between markets consisting of multiple sectors. First, we use nonparametric kernel method to derive test statistics that assign flexible weight to each lag order and are able to check a growing number of lags as the sample size increases. Second, we propose a practical multivariate volatility modeling approach — which enjoys estimation consistency and simplicity — to facilitate higher dimensional spillover testing. Simulations show the reasonable finite sample performance of the proposed econometric strategy in a relatively large system. An empirical application highlights the merits of the proposed approach.

Publication Type: Article
Additional Information: © 2023. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Publisher Keywords: Granger causality in variance; Infinite autoregression; Multivariate analysis; Risk management; Volatility spillover
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
[thumbnail of LeongUrga (2023 JEDC A practical multivariate approach to testing volatility spillover)_with Appendix.pdf] Text - Accepted Version
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