چکیده:
The increasing integration of financial markets has generated strong interest in understanding the interaction between these markets. The direction of shock transmission and volatility Spillover from one market to another may affect by structural changes in volatility. However, a shortcoming of traditional GARCH models is that ignore these structural changes. This study investigates the effect of structural changes in volatility on shock transmission and volatility Spillover among Iranian gold and foreign exchange markets during 2007-2013. For this purpose, first we detect the time points of structural breaks in volatility of gold and exchange rate returns endogenously using the modified iterated cumulative sums of squares algorithm. Then, we incorporate this information to modeling volatility process. The results of applying bivariate GARCH model in off-diagonal BEKK parameterization suggest that volatility spillover among Iranian gold and foreign exchange markets is bidirectional but shock transmission is unidirectional from the gold market to the foreign exchange market. Based on findings, ignoring structural breaks in volatility mislead the researcher about the dynamics of shocks and volatilities among these two important markets.
خلاصه ماشینی:
The Influence of Structural Changes in Volatility on Shock Transmission and Volatility Spillover among Iranian Gold and Foreign Exchange Markets1 Mohammad Mahdi Shahrazi Zahra (Mila) Elmi Esmaiel Abounoori Saeed Rasekhi Abstract Received: Accepted: he increasing integration of financial markets has generated strong interest in understanding the interaction between these markets.
For this purpose, first we detect the time points of structural breaks in volatility of gold and exchange rate returns endogenously using the modified iterated cumulative sums of squares algorithm.
In this paper, we evaluate the influence of structural changes in the direction of the shock transmission and volatility spillover between the Iranian Gold and Foreign exchange Markets.
Then, we introduce these structural breaks into bivariate GARCH models with Baba, Engle, Kraft and Kroner (1991) (hereafter BEKK) parameterization to accurately estimate the shock transmission and volatility spillover dynamics across these two Markets.
Ewing and Malik (2005) applied ICSS algorithm and Bivariate GARCH model to investigate the influence of structural changes in volatility on shock transmission and volatility spillover among American stock markets.
In the case of the bivariate GARCH–BEKK model with dummies, the diagonal parameters (a11, a22 and b11, b22) are statistically significant, thereby implying that their own past shocks and volatility affect conditional variance in the Iranian gold and foreign exchange markets.
Using a bivariate GARCH model with BEKK parameterization, this research assessed the impacts of structural changes in variance on shock transmission and volatility spillover between Iranian gold and foreign exchange markets for the period 2007-2013.
Consequently, ignoring structural changes in variance might distort the direction of shock transmission and volatility spillover between Iranian gold and foreign exchange markets.