Volatility and Return Spillovers in International Financial Markets
Finta, Marinela Adriana
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Globalization of financial markets has led to stronger relations among different markets and asset classes. As a result, information across financial markets is transmitted almost instantaneously with potential implications for domestic and international economies. Understanding how information is transmitted across different markets and assets is essential for investors, risk managers, and policy makers. In that respect, the focus of this thesis is to study the relations among financial markets through three different empirical studies. The third chapter of this thesis examines the instantaneous transmission of volatility, namely, contemporaneous spillover effects between the US and UK stock markets. It investigates these effects using high frequency data and focuses on the overlapping trading hours among stock markets. This study points out that when markets trade simultaneously, US volatility has a stronger impact on UK volatility than the other way around. The fourth chapter contributes to our understanding of the time-varying contemporaneous spillovers between the stock markets in Germany and four peripheral European countries that were most affected by the European Debt Crisis. The chapter shows the existence of higher spillover effects from the German market to the peripheral markets than the other way around. We further observe a reduction in the magnitude of the contemporaneous spillover effects during the European Debt Crisis in contrast to the Global Financial Crisis. The fifth chapter explores the contemporaneous spillovers among the US and Saudi Arabia stock markets, and the oil market taking into account its continuous trading hours. This chapter emphasizes the important role of oil volatility for both stock market volatilities. Particularly, it shows that during the overlapping trading hours, the volatility of the US and Saudi Arabia stock markets is more affected by the volatility of oil than the other way around. In addition, we document an increase in volatility transmission when accounting for the indirect effects which occur via third markets. All in all, the above findings shed light on how information is transmitted among different markets and assets.