Spillovers Across U.S. Financial Markets / Roberto Rigobon, Brian Sack.

Format:

Book

Author/Creator:

Rigobon, Roberto.

Contributor:

National Bureau of Economic Research.

Sack, Brian.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9640.

NBER working paper series no. w9640

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

Movements in the prices of different assets are likely to directly influence one another. This paper develops a model that identifies the contemporaneous interactions between asset prices in U.S. financial markets by relying on the heteroskedasticity in their movements. In particular, we estimate a structural-form GARCH' model that includes the short-term interest rate, the long-term interest rate, and the stock market. The results indicate that there are strong contemporaneous interactions between these variables. Accounting for this behavior is critical for interpreting daily changes in asset prices and for predicting the future paths of their variances and correlations. We demonstrate the importance of this consideration in a risk-management application.

Notes:

Print version record

April 2003.