2013/08/06 by Jozef Baruník, Evžen Kočenda, Barunik, Jozef +3
Economics, Econometrics and Finance · #Market Dynamics and Volatility #Financial Markets and Investment Strategies #Complex Systems and Time Series Analysis
paper · pdf · doi:10.48550/arxiv.1308.1221
Asymmetries in volatility spillovers are highly relevant to risk valuation\nand portfolio diversification strategies in financial markets. Yet, the large\nliterature studying information transmission mechanisms ignores the fact that\nbad and good volatility may spill over at different magnitudes. This paper\nfills this gap with two contributions. One, we suggest how to quantify\nasymmetries in volatility spillovers due to bad and good volatility. Two, using\nhigh frequency data covering most liquid U.S. stocks in seven sectors, we\nprovide ample evidence of the asymmetric connectedness of stocks. We\nuniversally reject the hypothesis of symmetric connectedness at the\ndisaggregate level but in contrast, we document the symmetric transmission of\ninformation in an aggregated portfolio. We show that bad and good volatility is\ntransmitted at different magnitudes in different sectors, and the asymmetries\nsizably change over time. While negative spillovers are often of substantial\nmagnitudes, they do not strictly dominate positive spillovers. We find that the\noverall intra-market connectedness of U.S. stocks increased substantially with\nthe increased uncertainty of stock market participants during the financial\ncrisis.\n