Structural Breaks and Volatility Spillovers: The Case of the US and Canadian Stock Markets

Abstract

This paper investigates the relations of structural breaks and volatility spillovers by using the US and Canadian stock return data. Specifically, applying spillover MGARCH models without and with structural break dummy variables to the two stock returns, this study derives the following interesting evidence. (1) First, we reveal that for both the US and Canadian stock returns, the volatility persistence parameter values in our spillover MGARCH models decline when structural break dummy variables are incorporated. (2) Second, we further clarify that when we do not take structural breaks into account, the spillover effect was unidirectional from Canada to the US. However, when we take structural breaks into consideration, the results from our spillover MGARCH model with structural break dummies demonstrate that the volatility spillover effects between the US and Canada become bidirectional. (3) Third, we furthermore reveal that around the Lehman Brothers bankruptcy in 2008, the time-varying volatilities derived from our spillover MGARCH model with structural break dummy variables show slightly higher values than those volatilities from our spillover MGARCH model with no structural break dummy variable.

Spillovers and Dynamic Correlations between REITs, Exchange Rates, and Equities in Japan

“…On the back of increasing global financial market integrations, the nexuses between financial markets have recently been the subject of investigation (e.g., Diebold and Yilmaz, 2009;Sadorsky, 2012;Tsuji, 2019;Ahmed, 2021;Schertler and Moch, 2021). However, most existing research has been conducted by mainly focusing on equity markets, and thus there are few previous studies of spillovers and dynamic correlations between financial markets by concentrating on real estate investment trusts (REITs).…”