Volatility spillovers across international swap markets: The US, Japan, and the UK

This paper examines volatility spillovers across the three major international swap markets, namely, the US, Japan, and the UK. We apply a multivariate VAR-EGARCH model by incorporating the slope of term structure and corporate spread variables to capture the time-varying nature of swap spread volatility across countries. Our empirical findings show that the changes in the swap spreads are significantly influenced by the slope of term structure variable in all three currencies. We find that the US swap market has a major influence on the Japanese and UK swap markets, but not vice versa. We also find that reciprocal spillovers exist between Japanese and the UK swap markets. In almost all cases, the degree of volatility persistence is fairly strong, and in many cases we find asymmetric volatility spillovers across maturity and country.