Source of Publication
Journal of Empirical Finance
© 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.
GARCH, Structural breaks, Volatility
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Caporin, Massimiliano and Malik, Farooq, "Do structural breaks in volatility cause spurious volatility transmission?" (2020). All Works. 1309.
Indexed in Scopus
Open Access Type
Green: A manuscript of this publication is openly available in a repository