Multivariate GARCH modeling of sector volatility transmission

Syed Aun Hassan; Farooq Malik

doi:10.1016/j.qref.2006.05.006

Multivariate GARCH modeling of sector volatility transmission

Syed Aun Hassan, Farooq Malik

Research output: Contribution to journal › Article › peer-review

108 Scopus citations

Abstract

This paper employs a multivariate GARCH model to simultaneously estimate the mean and conditional variance using daily returns among different US sector indexes from January 1, 1992 to June 6, 2005. Since different financial assets are traded based on these sector indexes, it is important for financial market participants to understand the volatility transmission mechanism over time and across sectors in order to make optimal portfolio allocation decisions. We find significant transmission of shocks and volatility among different sectors. These findings support the idea of cross-market hedging and sharing of common information by investors in these sectors.

Original language	English (US)
Pages (from-to)	470-480
Number of pages	11
Journal	Quarterly Review of Economics and Finance
Volume	47
Issue number	3
DOIs	https://doi.org/10.1016/j.qref.2006.05.006
State	Published - Jul 2007
Externally published	Yes

Keywords

MGARCH
Sector indexes
Volatility transmission

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.qref.2006.05.006

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title = "Multivariate GARCH modeling of sector volatility transmission",

abstract = "This paper employs a multivariate GARCH model to simultaneously estimate the mean and conditional variance using daily returns among different US sector indexes from January 1, 1992 to June 6, 2005. Since different financial assets are traded based on these sector indexes, it is important for financial market participants to understand the volatility transmission mechanism over time and across sectors in order to make optimal portfolio allocation decisions. We find significant transmission of shocks and volatility among different sectors. These findings support the idea of cross-market hedging and sharing of common information by investors in these sectors.",

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AB - This paper employs a multivariate GARCH model to simultaneously estimate the mean and conditional variance using daily returns among different US sector indexes from January 1, 1992 to June 6, 2005. Since different financial assets are traded based on these sector indexes, it is important for financial market participants to understand the volatility transmission mechanism over time and across sectors in order to make optimal portfolio allocation decisions. We find significant transmission of shocks and volatility among different sectors. These findings support the idea of cross-market hedging and sharing of common information by investors in these sectors.

KW - MGARCH

KW - Sector indexes

KW - Volatility transmission

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JO - Quarterly Review of Economics and Finance

JF - Quarterly Review of Economics and Finance

IS - 3

ER -

Multivariate GARCH modeling of sector volatility transmission

Abstract

Keywords

ASJC Scopus subject areas

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