Multivariate GARCH modeling of sector volatility transmission

Syed Aun Hassan, Farooq Malik

Research output: Contribution to journalArticlepeer-review

90 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 languageEnglish (US)
Pages (from-to)470-480
Number of pages11
JournalQuarterly Review of Economics and Finance
Volume47
Issue number3
DOIs
StatePublished - Jul 2007
Externally publishedYes

Keywords

  • MGARCH
  • Sector indexes
  • Volatility transmission

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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