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Effect of Risk Spillover between Financial Markets: Approach of Granger Causality in Risk
, M.Sc. Thesis Sharif University of Technology ; Keshavarz Haddad, Gholamreza (Supervisor)
Abstract
Volatility of returns in financial markets is a potential source of market risk. The volatility either is originated from fundamentals or transmitted from other financial markets. Present study aims to empirically investigate upward and downward risk spillover between the returns of chemical and pharmaceutical shares over 28/Mar/2009 and 01/Nov/2014. We use Hong et al. (2003) causality test approach as econometric tool. Our findings reveal that the most accurate modeling procedure for return’s volatility is GJR-GARCH with skewed GED distribution for error terms. Also, inferring the causality tests confirm presence of causality from chemical toward pharmaceutical market returns