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    Rights statement: This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Journal of Financial Econometrics following peer review. The definitive publisher-authenticated version Matteo Barigozzi, Marc Hallin, Stefano Soccorsi, Identification of Global and Local Shocks in International Financial Markets via General Dynamic Factor Models, Journal of Financial Econometrics, Volume 17, Issue 3, Summer 2019, Pages 462–494, https://doi.org/10.1093/jjfinec/nby006 is available online at: https://academic.oup.com/jfec/article/17/3/462/4915925

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Identification of Global and Local Shocks in International Financial Markets via General Dynamic Factor Models

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Identification of Global and Local Shocks in International Financial Markets via General Dynamic Factor Models. / Barigozzi, Matteo; Hallin, Marc; Soccorsi, Stefano.
In: Journal of Financial Econometrics, Vol. 17 , No. 3, 01.07.2019, p. 462-494.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

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Barigozzi M, Hallin M, Soccorsi S. Identification of Global and Local Shocks in International Financial Markets via General Dynamic Factor Models. Journal of Financial Econometrics. 2019 Jul 1;17 (3):462-494. Epub 2018 Mar 1. doi: 10.1093/jjfinec/nby006

Author

Barigozzi, Matteo ; Hallin, Marc ; Soccorsi, Stefano. / Identification of Global and Local Shocks in International Financial Markets via General Dynamic Factor Models. In: Journal of Financial Econometrics. 2019 ; Vol. 17 , No. 3. pp. 462-494.

Bibtex

@article{3d782d3e73cd42b29f0820f97eb2ab44,
title = "Identification of Global and Local Shocks in International Financial Markets via General Dynamic Factor Models",
abstract = "We employ a two-stage general dynamic factor model to analyze co-movements between returns and between volatilities of stocks from the U.S., European, and Japanese financial markets. We find two common shocks driving the dynamics of volatilities—one global shock and one United States–European shock—and four local shocks driving returns, but no global one. Co-movements in returns and volatilities increased considerably in the period 2007–2012 associated with the Great Financial Crisis and the European Sovereign Debt Crisis. We interpret this finding as the sign of a surge, during crises, of interdependencies across markets, as opposed to contagion. Finally, we introduce a new method for structural analysis in general dynamic factor models which is applied to the identification of volatility shocks via natural timing assumptions. The global shock has homogeneous dynamic effects within each individual market but more heterogeneous effects across them, and is useful for predicting aggregate realized volatilities.",
keywords = "Dynamic factor models, volatility, financial crises, contagion, interdependence",
author = "Matteo Barigozzi and Marc Hallin and Stefano Soccorsi",
note = "This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Journal of Financial Econometrics following peer review. The definitive publisher-authenticated version Matteo Barigozzi, Marc Hallin, Stefano Soccorsi, Identification of Global and Local Shocks in International Financial Markets via General Dynamic Factor Models, Journal of Financial Econometrics, Volume 17, Issue 3, Summer 2019, Pages 462–494, https://doi.org/10.1093/jjfinec/nby006 is available online at: https://academic.oup.com/jfec/article/17/3/462/4915925",
year = "2019",
month = jul,
day = "1",
doi = "10.1093/jjfinec/nby006",
language = "English",
volume = "17 ",
pages = "462--494",
journal = "Journal of Financial Econometrics",
issn = "1479-8409",
publisher = "Oxford University Press",
number = "3",

}

RIS

TY - JOUR

T1 - Identification of Global and Local Shocks in International Financial Markets via General Dynamic Factor Models

AU - Barigozzi, Matteo

AU - Hallin, Marc

AU - Soccorsi, Stefano

N1 - This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Journal of Financial Econometrics following peer review. The definitive publisher-authenticated version Matteo Barigozzi, Marc Hallin, Stefano Soccorsi, Identification of Global and Local Shocks in International Financial Markets via General Dynamic Factor Models, Journal of Financial Econometrics, Volume 17, Issue 3, Summer 2019, Pages 462–494, https://doi.org/10.1093/jjfinec/nby006 is available online at: https://academic.oup.com/jfec/article/17/3/462/4915925

PY - 2019/7/1

Y1 - 2019/7/1

N2 - We employ a two-stage general dynamic factor model to analyze co-movements between returns and between volatilities of stocks from the U.S., European, and Japanese financial markets. We find two common shocks driving the dynamics of volatilities—one global shock and one United States–European shock—and four local shocks driving returns, but no global one. Co-movements in returns and volatilities increased considerably in the period 2007–2012 associated with the Great Financial Crisis and the European Sovereign Debt Crisis. We interpret this finding as the sign of a surge, during crises, of interdependencies across markets, as opposed to contagion. Finally, we introduce a new method for structural analysis in general dynamic factor models which is applied to the identification of volatility shocks via natural timing assumptions. The global shock has homogeneous dynamic effects within each individual market but more heterogeneous effects across them, and is useful for predicting aggregate realized volatilities.

AB - We employ a two-stage general dynamic factor model to analyze co-movements between returns and between volatilities of stocks from the U.S., European, and Japanese financial markets. We find two common shocks driving the dynamics of volatilities—one global shock and one United States–European shock—and four local shocks driving returns, but no global one. Co-movements in returns and volatilities increased considerably in the period 2007–2012 associated with the Great Financial Crisis and the European Sovereign Debt Crisis. We interpret this finding as the sign of a surge, during crises, of interdependencies across markets, as opposed to contagion. Finally, we introduce a new method for structural analysis in general dynamic factor models which is applied to the identification of volatility shocks via natural timing assumptions. The global shock has homogeneous dynamic effects within each individual market but more heterogeneous effects across them, and is useful for predicting aggregate realized volatilities.

KW - Dynamic factor models

KW - volatility

KW - financial crises

KW - contagion

KW - interdependence

U2 - 10.1093/jjfinec/nby006

DO - 10.1093/jjfinec/nby006

M3 - Journal article

VL - 17

SP - 462

EP - 494

JO - Journal of Financial Econometrics

JF - Journal of Financial Econometrics

SN - 1479-8409

IS - 3

ER -