University of St.Gallen
research platform alexandria
search publications
browse publications
by person
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
 
by year

Risk spillovers in international equity portfolios

Matteo Bonato, Massimiliano Caporin & Angelo Ranaldo

abstract We define risk spillover as the dependence of a given asset variance on the past covariances and variances of other assets. Building on this idea, we propose the use of a highly flexible and tractable model to forecast the volatility of an international equity portfolio. According to the risk management strategy proposed, portfolio risk is seen as a specific combination of daily realized variances and covariances extracted froma high frequency dataset, which includes equities and currencies. In this framework, we focus on the risk spillovers across equities within the same sector (sector spillover), and fromcurrencies to international
equities (currency spillover). We compare these specific risk spillovers to a more general framework (full spillover) whereby we allow for lagged dependence across all variances and covariances. The forecasting analysis shows that considering only sector- and currency-risk spillovers, rather than full spillovers, improves performance, both in economic and statistical terms.
   
type journal paper
   
keywords Risk spillover; portfolio risk; currency risk; variance forecasting; international portfolio;
Wishart distribution.
   
language English
kind of paper journal article
date of appearance 12-2013
journal Journal of Empirical Finance
publisher Elsevier Science (Amsterdam)
ISSN 0927-5398
ISSN (online) 1879-1727
DOI 10.1016/j.jempfin.2013.09.005
volume of journal 2013
number of issue 24
page(s) 121-137
review double-blind review
   
citation Bonato, M., Caporin, M., & Ranaldo, A. (2013). Risk spillovers in international equity portfolios. Journal of Empirical Finance, 2013(24), 121-137, DOI:10.1016/j.jempfin.2013.09.005.