Long- and Short-Run Volatility Spillover in European Stock Markets (with Hossein Asgharian & charlotte Christiansen)
In this project, we plan to investigate the volatility spillover from the global stock market (US) to local European stock markets, namely France, Germany, Italy, Netherlands, Spain, Sweden, and the UK. We will propose a new framework where we combine the mixed data sampling (MIDAS) volatility approach of Engle, Ghysels & Sohn (2013) with the volatility spillover model of Bekaert & Harvey (1997). This will enable us to examine both short-run and long-run volatility spillover. To our knowledge, we will be the first to investigate the short-run and long-run volatility spillover. We will divide the unexpected return to the local country into long-run and short-run global and local effects. From this, we will measure the local country’s variance ratio related the long-run and short-run global and local effects. We will examine the potential effects from the recent financial crisis and the European sovereign debt crisis and we will study whether volatility spillover is asymmetric between positive and negative shocks.