A Study on the Volatility Transmission Mechanism of Global Alternative Investment Assets Considering the Time Varying Spillovers

Abstract

In this study, volatility spillover was analyzed based on the Time Varying Parameter VAR(Vector Autoregressive) model to identify the volatility transmission mechanism of alternative assets for the S&P Global Infrastructure Index, S&P Merger Arbitrage Index, and S&P U.S. SPAC Index.
 The results of the empirical analysis over the sample period are as follows: First, the total connectedness of the indices to be analyzed was estimated to be 27.22%, and the volatility spillover between the S&P500 and the Global Infrastructure Index was found to be quite high, whereas the index with the least connectedness to the S&P500 index was found to be the U.S. SPAC Index. Second, according to the net bidirectional connectedness estimation results, the most affected index was reported as the Merger Arbitrage Index, and the most affected index was reported as the Global Infrastructure Index. In addition, the U.S. SPAC Index was relatively neutral, confirming the possibility of contributing greatly to the portfolio diversification effect. Third, the total connectedness of the indices showed a behavior of rapidly increasing and then decreasing again at the time of the global spread of the coronavirus, but different movements were observed for each index, and the SPAC Index reacted more sensitively than other indexes.