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The aim of this study is to analyze the influence of structural changes in volatility on the transmission of information. We present empirical evidence on European stock exchange markets based on information from the principal European stock indexes. In order to include structural changes in variance, we followed the [Sanso, A., Arago, V., Carrion, J.Ll., 2004. Testing for changes in the unconditional variance of financial time series. Revista de Economia Financiera 4, 32–53] modification of the methodology proposed by [Inclan, C., Tiao, G.C., 1994. Use of cumulative sums of squares for retrospective detection of changes of variance. Journal of the American Statistical Association 89, 913–923.], to take into account the problems of kurtosis and heteroskedasticity in the analyzed series. To study the existence of transmission of volatility we used an asymmetric bivariate GARCH model, specifically, the time-varying covariance asymmetric BEKK model [Engle, R.F., Kroner, K.F., 1995. Multivariate simultaneous generalized ARCH. Econometric Theory 11, 122–150]. The most outstanding result is the significance of the variables that represent these changes. When taken into consideration, they influence the scheme of transmission. Structural changes should therefore be incorporated into this type of study. |
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