The intraday volatility spillover index approach and an application in the Brexit vote

In this paper, we extend the spillover index of Diebold and Yilmaz (2012, 2014) to the high-frequency field and propose a new approach, the Intraday Volatility Spillover Index (IVSI) approach. This method is based on intraday data and can easily be used to conduct a short-run analysis of volatility spillovers. This new approach consists of three steps: first, the removal of intraday periodicity, then, the estimation of intraday volatility, and, finally, the calculation of volatility spillovers. We use the IVSI approach to examine the influence of the Brexit vote on volatility spillovers among five major European stock markets. Empirical results show no apparent changes in the connectedness of these markets, in a sample period after the vote that is three months long. But when the period is reduced to one month, the volatility spillovers in these markets clearly increase, with a changed spillover mechanism. Further dynamic studies indicate that after the vote the volatility spillovers increase in the first month and then decrease in the second month. More interestingly and unexpectedly, on the first trading day after the Brexit vote, the volatility spillover among these European markets largely diminishes.