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Volatility Transmission Between U.S. Sector ETFs: An Application of Diebold-Yilmaz Connectedness Framework

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Date

2015

Authors

Supervisor

Da Fonseca, Jose

Item type

Thesis

Degree name

Master of Business

Journal Title

Journal ISSN

Volume Title

Publisher

Auckland University of Technology

Abstract

This paper utilizes the Connectedness framework of Diebold and Yilmaz (2011) to investigate volatility transmission between ten iShares sector ETFs over the sample ranging from 2 January 2001 to 31 December 2014. Generally, the empirical results indicate that the total volatility spillover of ten examined sector ETFs is time-varying and sensitive to market as well as economic events. Over time, Energy and Basic Materials are the two largest net volatility transmitters while Consumer Services, Healthcare, and Consumer Goods are the top three largest net volatility receivers among the sectors. Findings imply that oil prices have an impact on volatility of other sectors as well as the market index as a whole. Findings are useful for not only the investors in evaluating the overall risk of their portfolios but also the policy makers in addressing financial stability issues and problems related to contagion between sectors. Furthermore, this paper contributes to the literature by providing the first analysis of volatility transmission between sectors using ETF assets.

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Keywords

Volatility transmission, U.S. sector ETFs, Diebold-Yilmaz connectedness framework, DY framework, Volatility connectedness

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DOI

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Permanent link

https://hdl.handle.net/10292/9289

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Masters Theses