A volatility impulse response analysis applying multivariate GARCH models and news events around the GFC
Modelling and Simulation Society of Australia and New Zealand
Place of Publication
Weber, T., McPhee, M.J. & Anderssen, R.S.
Faculty of Business and Law
School of Business
This paper features an application of the Hafner and Herwartz (2006) approach to the analysis of multivariate GARCH models using volatility impulse response analysis. The data set used features ten years of daily return series for the New York Stock Exchange Index and the FTSE 100 index from the London stock Exchange, taken from 3rd January 2005 to January 31st 2015. This period captures both the Global Financial Crisis (GFC) and the subsequent European Sovereign Debt Crisis (ESDC). The attraction of the Hafner and Kerwartz (2006) approach is that it involves a novel application of the concept of impulse response functions, tracing the effects of independent shocks on volatility through time, whilst avoiding typical orthogonalization and ordering problems. Volatility impulse response functions (VIRF) provide information about the impact of independent shocks on volatility.