Testing and modeling jump contagion across international stock markets: A nonparametric intraday approach

• Published in: Journal of financial markets (Amsterdam, Netherlands) Netherlands), 2015-11, Vol.26, p.64-84
• Main Authors: Jawadi, Fredj, Louhichi, Waël, Idi Cheffou, Abdoulkarim
• Format: Article
• Language: English
• Subjects: Jump contagion effect; Nonparametric test; Overlapping and non-overlapping trading hours; Realized volatility; Threshold autoregressive models
• ISSN: 1386-4181; 1878-576X
• DOI: 10.1016/j.finmar.2015.09.004

We investigate the contagion hypothesis between the United States and three European markets (Germany, the United Kingdom, and France). We focus on realized volatility, which we break down into continuous and jump parts, and we test the contagion hypothesis between jumps during overlapping and non-overlapping hours. We find a significant relation between jumps and realized volatility and spillover effects between jumps. The U.S. market plays the leading role during overlapping hours, but regional contagion is more obvious during non-overlapping hours. Interestingly, jump contagion effects exhibit asymmetry and nonlinearity, and vary according to regimes. Accordingly, we improve jump modeling and spillover. •This paper investigates jump dynamics in a nonlinear framework.•We show significant realized volatility decomposition.•We point to significant asymmetrical and on/off contagion effects that vary per regime and for overlapping and non-overlapping trading hours.•We note a leader role for the US market.