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Volatility spillover among sector equity returns under structural breaks
Recent evidence suggests that ignoring structural breaks in volatility in financial asset returns can result in overestimation of volatility spillover among markets. This paper examines volatility spillover among major US equity sectors (i.e. Financial, Technology, Energy, Health, Consumer and Indus...
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Formato: | Online Artículo Texto |
Lenguaje: | English |
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Springer US
2021
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Acceso en línea: | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8444180/ http://dx.doi.org/10.1007/s11156-021-01018-8 |
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author | Malik, Farooq |
author_facet | Malik, Farooq |
author_sort | Malik, Farooq |
collection | PubMed |
description | Recent evidence suggests that ignoring structural breaks in volatility in financial asset returns can result in overestimation of volatility spillover among markets. This paper examines volatility spillover among major US equity sectors (i.e. Financial, Technology, Energy, Health, Consumer and Industrial) with bivariate GARCH models utilizing daily data from April 2006 to March 2021 after adjusting for volatility breaks. I find significantly less volatility spillover between sector returns after adjusting for detected volatility breaks into a bivariate GARCH model. I also show that after adding volatility breaks into a model the estimated hedge ratios change significantly and show considerably less variability over time, which can result in substantial savings in portfolio rebalancing costs. |
format | Online Article Text |
id | pubmed-8444180 |
institution | National Center for Biotechnology Information |
language | English |
publishDate | 2021 |
publisher | Springer US |
record_format | MEDLINE/PubMed |
spelling | pubmed-84441802021-09-16 Volatility spillover among sector equity returns under structural breaks Malik, Farooq Rev Quant Finan Acc Original Research Recent evidence suggests that ignoring structural breaks in volatility in financial asset returns can result in overestimation of volatility spillover among markets. This paper examines volatility spillover among major US equity sectors (i.e. Financial, Technology, Energy, Health, Consumer and Industrial) with bivariate GARCH models utilizing daily data from April 2006 to March 2021 after adjusting for volatility breaks. I find significantly less volatility spillover between sector returns after adjusting for detected volatility breaks into a bivariate GARCH model. I also show that after adding volatility breaks into a model the estimated hedge ratios change significantly and show considerably less variability over time, which can result in substantial savings in portfolio rebalancing costs. Springer US 2021-09-16 2022 /pmc/articles/PMC8444180/ http://dx.doi.org/10.1007/s11156-021-01018-8 Text en © The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021 This article is made available via the PMC Open Access Subset for unrestricted research re-use and secondary analysis in any form or by any means with acknowledgement of the original source. These permissions are granted for the duration of the World Health Organization (WHO) declaration of COVID-19 as a global pandemic. |
spellingShingle | Original Research Malik, Farooq Volatility spillover among sector equity returns under structural breaks |
title | Volatility spillover among sector equity returns under structural breaks |
title_full | Volatility spillover among sector equity returns under structural breaks |
title_fullStr | Volatility spillover among sector equity returns under structural breaks |
title_full_unstemmed | Volatility spillover among sector equity returns under structural breaks |
title_short | Volatility spillover among sector equity returns under structural breaks |
title_sort | volatility spillover among sector equity returns under structural breaks |
topic | Original Research |
url | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8444180/ http://dx.doi.org/10.1007/s11156-021-01018-8 |
work_keys_str_mv | AT malikfarooq volatilityspilloveramongsectorequityreturnsunderstructuralbreaks |