Forecasting Return and Spillover with GARCH's Essay

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Spillover Effect on the Stock Market and Bond Prices in Relation with GARCH

Abstract

This study examines the spillover effect between bond and stock markets in the U.S. using GARCH. The finding of a unidirectional spillover flow from bonds to stocks in the U.S. is discussed in the light of new marketplace variables that have been introduced into the markets in the previous decade. These variables include the rise of HFT, algorithm-driven trading, and central banking interventionism via unconventional monetary policy. The effect on forecasting volatility, price and return of asset classes, studied through the lens of other commodity price movement and volatility—such as oil and gold markets—creates a compelling picture for why GARCH models may need to be reworked to incorporate new data regarding the new ways in which the 21st century marketplace is using technology and central bank interventionism to shape market movements and market outcomes.

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Table of Contents



1 Introduction 4

1.1 Why this research is important 4

1.2 What this paper examines 6

1.3 The most important findings and contributions this study makes to existing literature 7

2 Literature Review 11

3 Hypothesis Development 19

3.1 Spillover as a Result of Unconventional Monetary Policy 19

3.2 Low-Vol Complacency 20

3.3 Spillover is Unidirectional 21

3.4 Algorithm-Driven Trading and Market Movement 22

4 Data and Methodology 23

5 Findings 27

6 Analysis 37

7 Conclusion 47
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"Forecasting Return And Spillover With GARCH's", 16 August 2017, Accessed.27 April. 2024,
https://www.aceyourpaper.com/essays/forecasting-return-spillover-garch-2175335
   

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