In this paper we replicate the Diebold and Yilmaz (2012) study on the connectedness of the Commodity market and three other financial markets: the stock market, the bond market, and the FX market. We show that both the row and the column normalization schemes of the Generalized Forecast Error Variance Decomposition, suggested by the authors, lead to inaccurate measures of net contribution to risk transmission, in terms of ranking and sign. We show that, considering data generating processes characterized by different degrees of comovement and persistence, a scalar based normalization of the Generalized Forecast Error Variance Decomposition yields consistent (free of sign and ranking errors) net spillovers.

Caloia, F., A., Cipollini e S., Muzzioli. "On the financial connectedness of the commodity market: a replication of the Diebold and Yilmaz (2012) study" Working paper, DEMB WORKING PAPER SERIES, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2018. https://doi.org/10.25431/11380_1167023

On the financial connectedness of the commodity market: a replication of the Diebold and Yilmaz (2012) study

Caloia, F.;Cipollini, A.;Muzzioli, S.
2018

Abstract

In this paper we replicate the Diebold and Yilmaz (2012) study on the connectedness of the Commodity market and three other financial markets: the stock market, the bond market, and the FX market. We show that both the row and the column normalization schemes of the Generalized Forecast Error Variance Decomposition, suggested by the authors, lead to inaccurate measures of net contribution to risk transmission, in terms of ranking and sign. We show that, considering data generating processes characterized by different degrees of comovement and persistence, a scalar based normalization of the Generalized Forecast Error Variance Decomposition yields consistent (free of sign and ranking errors) net spillovers.
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http://merlino.unimo.it/campusone/web_dep/wpdemb/0131.pdf
DEMB Working Paper Series
Caloia, F.; Cipollini, A.; Muzzioli, S.
Caloia, F., A., Cipollini e S., Muzzioli. "On the financial connectedness of the commodity market: a replication of the Diebold and Yilmaz (2012) study" Working paper, DEMB WORKING PAPER SERIES, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2018. https://doi.org/10.25431/11380_1167023
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11380/1167023
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