The Influence of Volatility Structural Changes on Shock Transmission and Volatility Spillover between Gold and Stock Markets in Iran

Subject Areas : Labor and Demographic Economics

zahra (mila)  elmi ¹ (دانشیار دانشگاه مازندران)
esmaiel  aboonouri ² (استاد دانشگاه سمنان)
saeed  rasekhi ³ (دانشیار دانشگاه مازندران)
mohamadmehdi  shahrazi ⁴ (دانشجوی دکتری مازندران)

Received: 2014-02-26 Accepted : 2014-06-02 Published : 2014-09-01

Keywords: C32, C58, G10,

Abstract :

This study investigates the effect of volatility structural changes on the shock transmission and volatility Spillover between gold and stock markets in Iran during 2007-2013. For this purpose, firstly, we will detect the time periods of structural breaks in volatility of gold and stock returns endogenously using the standard and modified iterated cumulated sums of squares (ICSS) algorithm. Then, this information incorporates to model the volatility process. The application of bi-variate GARCH model in off-diagonal BEKK parameterization suggest that shock transmission and volatility spillover between gold and stock markets is bidirectional in Iran. Also, based on the present research findings, ignoring or incorrect detection of structural breaks mislead the researcher about the direction of volatility transmission between gold and stock markets.

References:

منابع

-         ابطحی، سیدیحیی، نیک فطرت، حامد (1391).شناسایی چرخش رژیم در بازده بازار اوراق بهادار ایران. مجله‏ی مدلسازی اقتصادی، 6 (20):56-41.

-        Khalifa, A.A., & Hammoudeh S., & Otranto, E.)2014(. Patterns of volatility transmissions within regime switching across GCC and global markets. International Review of Economics & Finance, 29(3): 512–524.

-        Arago, V., & Fernandez, M.A. (2007). Influence of structural changes in transmission of information between stock markets: A European Empirical Study. Journal of Multinational Financial Management, 17(1):112-124.

-        Darrat, A.F., & Benkato O.M. (2003). Interdependence and volatility spillovers under market liberalization: The case of Istanbul stock exchange. Journal of Business Finance and Accounting, 30(1): 1089–1114.

-        Ewing, B.T., & Malik, F. (2005). Re-examining the asymmetric predictability of variances: the role of sudden changes in variance. Journal of Banking & Finance, 29(5): 2655-2673.

-        Ewing, B.T., & Malik, F. (2013).Volatility transmission between gold and oil futures under structural breaks. International Review of Economics and Finance, 25(3): 113–121.

-        Inclan, C., & Tiao G.C. (1994). Use of cumulative sums of squares for retrospective detection of changes of variance. Journal of American Statistical Association, 89(2): 913-923.

-        Kang, S.H.,& Cheong C., & Yoon, S.M. (2011). Structural changes and volatility transmission in crude oil markets. Physica A, 390(4): 4317-4324.

-        Karolyi, G.A. (1995). A MGARCH model of international transmissions of stock returns & volatility: Case of the United States & Canada. Journal of Business and Economic Statistics, 13(1): 11-25.

-        Malik, F., & Ewing, B. T., & Payne, J. E. (2005). Measuring volatility persistence in the presence of sudden changes in the variance of Canadian stock returns. Canadian Journal of Economics, 38(4): 1037-1056.

-        Poon, S. H., & Granger, C. W. J. (2003). Forecasting volatility in financial markets: A Review. Journal of Economic Literature, 41(5): 478-539.

-        Hassan, S.A., & Malik, F. (2007). Multivariate GARCH Modeling of Sector Volatility Transmission. Quarterly Review of Economics and Finance, 47(1): 470–480.

-        Sanso, A., & Arago, V., & Carrion, J.Ll. (2004). Testing for changes in the unconditional variance of financial time series. Revista de Economía Financiera, 4(4): 32–53.