Document Type
Article
Source of Publication
Journal of Empirical Finance
Publication Date
1-1-2020
Abstract
© 2019 Elsevier B.V. We show through extensive Monte Carlo simulations that structural breaks in volatility (volatility shifts) across two independently generated return series cause spurious volatility transmission when estimated with popular bivariate GARCH models. However, using a dummy variable for the induced volatility shift virtually eliminates this bias. We also show that structural breaks in volatility have a substantial impact on the estimated hedge ratios. We confirm our simulation findings using the US stock market data.
DOI Link
ISSN
Publisher
Elsevier B.V.
Volume
55
First Page
60
Last Page
82
Disciplines
Business
Keywords
GARCH, Structural breaks, Volatility
Scopus ID
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Caporin, Massimiliano and Malik, Farooq, "Do structural breaks in volatility cause spurious volatility transmission?" (2020). All Works. 1309.
https://zuscholars.zu.ac.ae/works/1309
Indexed in Scopus
yes
Open Access
yes
Open Access Type
Green: A manuscript of this publication is openly available in a repository