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Dynamic volatility spillover and network connectedness across ASX sector markets

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Abstract

This study measures dynamic volatility spillovers and identifies the connectedness network across 11 Australian Securities Exchange (ASX) sector indices using the spillover index methodology of Diebold and Yilmaz (J Econ 182:119–134, 2014). Additionally, we visualize volatility connectedness relationships as links within a complex network to capture the propagation path of volatility connectedness across the 11 ASX sectors. Our results indicate that recent financial crises intensified the degree of volatility connectedness across the 11 ASX sectors, supporting the contagion hypothesis. Importantly, the financial sector is the main transmitter of volatility connectedness across the 11 ASX sector markets.

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Notes

  1. Derived from World Federation of Exchanges (WFE) data. Accessed https://statistics.world-exchanges.org/, 30 December 2020. Figures are for Calendar 2019.

  2. https://www.psl.com.au/Wealth-Management/News-Insights/Article-Library/Overview-of-the-Australian-Share-Marke, 30 December 2020.

  3. We use the open-source Gephi software to visualize network graphs (https://gephi.org).

  4. We consider volatility jumps that are caused by economic and financial events such as the GFC and EDC. Empirical studies classify the crisis periods including the 2008–2009 GFC and 2010–2012 EDC (Mensi et al. 2016; Mclver and Kang 2020).

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Acknowledgments

This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2020S1A5B8103268).

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Authors and Affiliations

  1. Institute of Economics and International Trade, Pusan National University, Busan, 46241, South Korea

    Ki-Hong Choi

  2. UniSA Business, University of South Australia, GPO Box 2471, Adelaide, 5001, South Australia, Australia

    Ron P. McIver & Lei Xu

  3. Global Founders Funds Management, Melbourne, Australia

    Salvatore Ferraro

  4. Department of Business Administration, Pusan National University, Busan, South Korea

    Sang Hoon Kang

Authors
  1. Ki-Hong Choi
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  2. Ron P. McIver
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  3. Salvatore Ferraro
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  4. Lei Xu
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  5. Sang Hoon Kang
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Corresponding author

Correspondence to Sang Hoon Kang.

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Highlights

• This study investigates volatility spillovers and the connectedness network across ASX sector markets.

• The spillover index of Diebold and Yilmaz (2014) is applied to measure the magnitude and direction of volatility connectedness.

• We visualize the propagation path of the volatility connectedness network.

• The financial sector is the main transmitter of volatility connectedness.

Appendix

Appendix

Table 3 Sector index list
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Choi, KH., McIver, R.P., Ferraro, S. et al. Dynamic volatility spillover and network connectedness across ASX sector markets. J Econ Finan 45, 677–691 (2021). https://doi.org/10.1007/s12197-021-09544-w

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