Do volatility spillover effects vary across stock market crashes An empirical analysis

Abstract

The aim of this paper is to compare the volatility of nine developed and emerging stock markets, with the US market during the 2005-2021 period. We use the ICSS algorithm to detect a change point of a stationary structure in a time series and we consider a dynamic conditional correlation specification to model the time-varying feature of volatility. Our findings make two interesting contributions to the relevant literature: first, we show significant bidirectional volatility spillover between the USA and equity markets during crises; second, the study of dynamic relationships between stock markets shows contagion effects only in periods of high volatility: the impact of shocks from the US market is more substantial during the post-crisis period. Finally, the empirical analysis shows evidence of transmission effects of volatility shocks. Market adjustment processes require regulatory and supervisory government measures that can prevent a systemic crisis.