Advances in Risk Management

320 VOLATILITY TRANSMISSION PATTERNS BETWEEN THE USA AND SPAIN

1

0.05

0.00

0.05

0.10

0.15

0.20

0.25

0.30

10 19 28 37 46 55

Days

A. A positive shock in the S&P500

AVIRF S&P500

64 73 82 91 100 1

0.05

0.00

0.05

0.10

0.15

0.20

0.25

0.30

10 19 28 37 46 55

Days

B. A positive shock in the IBEX35

AVIRF S&P500

64 73 82 91 100

C. A positive shock in the S&P500

1

0.05

0.00

0.05

0.10

0.15

0.20

0.25

0.30

10 19 28 37 46 55

Days

AVIRF IBEX35

64 73 82 91 100

D. A positive shock in the IBEX35

1

0.05

0.00

0.05

0.10

0.15

0.20

0.25

0.30

10 19 28 37 46 55

Days

AVIRF IBEX35

64 73 82 91 100

Figure 16.4AVIRF to positive unexpected shocks from the

VAR-asymmetric BEKK. Pre-September 11 period (dashed lines display

the 90% confidence interval)

In general, the most appealing results are: (1) conditional variances are
more sensitive to negative than to positive shocks; (2) unexpected shocks in
S&P500 have more impact on the whole covariance matrix than unexpected
shocks in IBEX35; (3) IBEX35 variance is more sensitive to any shock than
S&P500 variance; (4) before September 11, there are no significant volatility
spillovers in any direction and, after the terrorist attack, there is unidi-
rectional variance causality from the S&P500 to the IBEX35; (4) generally,
significant shocks take a long time to die out; and (5) the IBEX35 volatil-
ity has an overshooting reaction to a negative shock in the S&P500 when
the whole sample is analyzed. This could be due to the high persistence of
the IBEX35 or to an overreaction in the Spanish market because, at 16:00,
Spanish investors will only have one and a half hours left to react before the
market closes at 17:30.
Therefore, these results add evidence in favor of the hypothesis of uni-
directional variance causality from the S&P500 to the IBEX35. The AVIRF