Volatility transmission in global financial markets

• Financial volatility linkages between Japan, Europe and the U.S. are examined.
• Significant volatility spillovers occur on the same trading day between these regions.
• Volatility transmission cannot be categorised simply as a heat wave or a meteor shower.
• All markets exhibit significant asymmetry in terms of the transmission of volatility.
• Jump activity is only important within the equity markets.

This paper considers the transmission of volatility in global foreign exchange, equity and bond markets. Using a multivariate GARCH framework which includes measures of realised volatility as explanatory variables, significant volatility and news spillovers are found to occur on the same trading day between Japan, Europe, and the United States. All markets exhibit significant degrees of asymmetry in terms of the transmission of volatility associated with good and bad news. There are also strong links between diffusive volatilities in all three markets, whereas jump activity is only important within the equity markets. The results of this paper deepen our understanding of how news and volatility are propagated through global financial markets.