Measuring the Spillover Effects from the Stock Market Volatility in Selected Major Economies to the Stock Market Volatility in the United Kingdom

Key Points

• The aim is to assess how volatility from major global stock markets affects the UK stock market.
• Analyzed daily data from major indices and Brent crude oil prices.
• Employed GARCH-family and FIGARCH models to model volatility dynamics.
• Used VAR-X models with robustness checks for various crises.
• Utilized bootstrap-corrected GIRFs to trace impacts over time.
• Optimal out-of-sample forecasting and Value-at-Risk backtesting compared to traditional methods.
• Strong and persistent spillovers from US and German markets to the UK.
• Chinese market impacts are slower and more gradual.
• Japanese market shocks are either muted or short-lived.
• Spillover effects peak during global crises, indicating heightened market sensitivity.
• Model outperformed standard benchmarks for forecasting and risk management.

Abstract