Transmission of Volatility in

Turkish and US Financial Markets∗

Mehmet Zahi̇d Samancıoğlu

February 2009

Abstract

This study examines dynamics of returns and volatilities across bond

and stock markets in Turkey and United States. Transmission of volatil-
ity between bond and stock markets across countries is estimated using
the BEKK (Baba, Engle, Kraft and Kroner (1990)) method which is a
decomposition approach to the multivariate GARCH(1,1) model. Re-
turns in these markets are calculated, their volatility and influence of
volatility on different markets are estimated. Results indicate significant
influence of US stock market volatility on Turkish stock market returns.
More over, in Turkey higher volatility in stock markets significantly leads
lower volatility in bond markets indicating direction of change in port-
folio preferences, which is not the case in US. While the opposite rela-
tion, transmission of volatility from bond to stock market, is less clear in
Turkey, it is significant in US. High persistency of volatility in Turkish
bond market is noted and transmission from US bond market to Turkish
market is insignificant On the other hand, volatility is persistent in stock
markets, in addition to significant transmission across countries. This
may be an indication of more portfolios in stock markets compared to
bond markets.

∗
This work is prepared as a term paper in IAM526 Time Series

0
1 Introduction

The financial markets in the world have become more and more integrated over
the last two decades. After the liberalization policies conducted by many coun-
tries for the free flow of goods and capital across countries, international trade
and capital flows have risen dramatically. Greater financial integration has
important consequences for the real economy and the financial sector. Foreign
ownership of financial assets is greater in many countries, supply chains are
more globalized, events in a single country have more widespread effect then
before. With the increased level of integration, more and more “international
investors” invest in a diversified portfolio of assets from different markets and
domestic investors become “international”. With more “international investors”
investing in markets over the world, developments in the “international mar-
kets” dominate and lead domestic developments, and usually determine the
trend in small economies.

There are two drivers of financial integration: elimination of risk and seeking
of more returns. While diversification eliminates some country specific risks in
the portfolios of investors, the transmission of risk between markets increases.
In a more integrated global financial framework, it becomes more important to
identify sources of risk stemming from domestic and global sources. Moreover,
interaction among different types of financial markets requires more attention,
as integration among financial market increases.

Figure 1: Turkish Bond Market Volatility relationship with US

1
1.1 Motivation

Our motivations in the subject stems from the observation of the different
episodes in Turkish bond market volatility compared to US bond market
volatility in Figure 1. In this graph episodes where ratio of the Turkish
bond market conditional variance to US bond market variance moves together
with covariance between two markets are shaded. While these episodes mostly
matches to financial turmoils in Turkish markets, they also indicate a strong
influence coming from external markets.

For instance in 98 we observe Asian crisis, in 2000 dot-com bubble etc. It also
indicates a strong structural change in Turkish markets in recent years. In the
last quarter of 2008 we observe very large increase in covariance across Turkey
and US. Also in this period Turkish market maintains its relative volatility.
In other words compared to previous crisis where an international volatility
shocks were transmitted to Turkish markets with higher multipliers, in the
most recent one transmission was with relatively low coefficients. In a sense
this picture shows higher resilience of the Turkish market to the global shock
in this crisis, it also shows the very high jump in the US corporate bond rates.

Figure 2: US and Turkish Bond Market Spreads over US 6 Month Treasury

Rates

In Figure 2 till 2005 we observe not only very strong co-movement but also
very close levels between Turkish Bond spread and US corporate bond spreads.
But after 2005 while both markets continue to move together, gap widens
against US high yield corporate bonds. These observations leads us to further
investigate the relation among these markets in a more delicate framework.

2
1.2 Literature

Empirical analysis of financial integration in international markets, usually

depends on different models of volatility applied to these markets. In general
the ARCH and GARCH models introduced by Engle (1982) and Bollerslev
(1986) are widely used to estimate and predict volatilities in financial markets.
These non-linear models have attracted great interest in both academia and
industry creating a vast literature. For a review of this literature we refer to
Bollerslev, Chou and Kroner (1992), Bollerslev, Engle and Nelson (1994) and
for multivariate GARCH models see Bauwens, Laurent and Rombouts (2003).

Using different classes of GARCH models, financial integration literature is

mainly focused on quantifying the level of integration, examining its behavior in
different episodes and identifying the determinants for its level (for integration
among stock markets see DeJong, DeRoon (2005), Carrieri et al. (2007) and
Chambet and Gibson (2008), for bond markets see Plummer and Click (2005)
and for an integration among European markets see Baele et al. (2004)). In a
more general framework the relationship between financial integration and the
real economy also attract some attention (see Evans and Hnatkovska (2007)).

However this strand of financial integration literature mostly examines the

integration among individual types of markets, and effects of integration on
interaction between different types of markets is usually neglected. In its fun-
damental nature different types of financial market interact together. There
is a vast literature in finance which tries to understand these inter dependen-
cies (For instance see Fleming et al. (1998) for volatility linkages between the
stock, bond and money markets in US). Goeij and Marquering (2004) focus on
the transmit ion of volatility between stock and bond markets, in a framework
allowing asymmetric effects in conditional variances and covariances. Kim et
al. (2006) evaluate stock and bond market integration and examine their inter-
action, which is investigated as an influence of the European Monetary Union.

1.3 Aim of the paper

In this paper we will try to connect the financial integration literature with
the literature about the inter dependencies in different types of markets. More
specifically, we will investigate the volatility transmission between bond and
stock markets in Turkey and US as a result of financial integration. The cor-
relation of stock and bond returns is an empirically observed phenomenon
using various models. These interconnections are evident considering the con-
sequences of financial events which have world wide spread effects, such as
LTCM failure, Argentine crisis, Dot-Com bubble in the past two decades. Even
these events occurred in different markets (in terms of geography or asset) their

3
effects have been transmitted to other markets. Because of this fact, with inte-
grated world markets where investores are trying to eliminate some part of risk
through diversification of assets and geographical locations, it is important to
understand transmission of volatility between these markets.

In his pioneering work Merton (1974) states a negative relation of assets dur-
ing high volatility periods based on the behavior of bond holders issuing put
options to stock holders. In this setup, when implied volatility of firms start to
increase indicating higher default risk, bond prices start to fall due to increased
default risk. Meanwhile value of put options increases benefiting stockholders.
This structure proposes idiosyncratic volatility to have an important influence
on bond yields besides changes in the credit ratings. Latter empirical evidence
(ie. Campbell and Taksler (2003)) supports this proposition, however in this
study cross-border volatility transmission is neglected. If portfolios are interna-
tionally diversified and higher uncertainty about international (U.S.) interest
rates may be transmitted to international counterparts. This mechanism may
dominate the domestic risk signal and we may observe prices of the domestic
assets reflecting mostly international events. As the share of emerging markets
in international markets increase in the recent years we will investigate this
transmission between U.S. and Turkey as an emerging market.

2 Description of Data

For bond markets returns frames JP Morgan Emerging Market Bond Index
(EMBI) Global indices is used. For stock markets weekly returns from Morgan
Stanley Capital International (MSCI) is used. It is important to note that
Merrill Lynch High Yield indices as international bond market. We use non-
investment grade high yield indices since they have more explanatory power for
business cycle in US (as shown by Gertler and Lown (2000)) and it has similar
rating for Turkish government bonds. This index is also used as a measure for
international risk component for emerging economies (see Neumeyer and Perri
(2005)). To capture international stock market developments we use MSCI US
index. All indices are used for the period June 1996 till January 2009.

We plot conditional variances of US and Turkey bond and stock markets in

Figures 3 and 4. In both economies stocks are more volatile than bonds. On
average, in Turkey stock market is 10.2 times more volatile than bonds, while
in US it is 4 times more volatile. Descriptive statistics of these markets are
given in Table 1. All markets exhibit negative skewness at various degrees,
have fat tails where normality is rejected.

4
Table 1: Descriptive Statistics for Turkish and US bond and stock markets

Turkey US
Bond Stock Bond Stock
Mean 0.001358 0.000428 -0.000027 -0.000253
Median 0.001720 0.004138 0.001005 0.001899
Maximum 0.128525 0.203376 0.045384 0.084240
Minimum -0.131435 -0.321422 -0.115140 -0.155022
Std. Dev. 0.017223 0.062634 0.009981 0.020782
Skewness -1.166969 -0.545129 -3.876243 -0.897198
Kurtosis 18.224281 5.076744 40.100840 9.367074

Jarque-Bera 6454.5 149.7 39086.8 1190.6

Probability 0.00 0.00 0.00 0.00

Sum 0.886714 0.279798 -0.017685 -0.165503

Sum Sq. Dev. 0.193408 2.557831 0.064947 0.281583

Observations 653 653 653 653

Weekly excess returns, MSCI indices are used for stock markets, EMBI Global index is used
for Turkish bond market, Merrill Lynx High Yield index is used for US bond market

Figure 3: Conditional Variance of Turkish Bond and Stock Market Weekly

Excess Returns (GARCH(1,1)-M, GED)

5
Figure 4: Conditional Variance of US Bond and Stock Market Weekly Excess
Returns (GARCH(1,1)-M, GED)

3 Model

Following Engle and Kroner(1995) a multivariate GARCH(1,1)-BEKK repre-

sentation is employed to model the relationship. The model is suitable for two
or more variables and it has several advantages over VAR or VECH represen-
tation of GARCH. The representation of the model is1

xt = γ + βxt−1 + t (1)

where xt = (x1,t , x2,t ) is vector of returns for markets, i,t = (e1,t , e2,t ) is the
residual vector which is bi-variate normally distributed with t |Φt−1 ∼ (0, Ht )
with conditional variance matrix given by
 
h11t h12t
Ht = (2)
h21t h22t
1
Engle and Kroner (1995)

6
The BEKK representation, which is a spectral decomposition of the conditional
variance-covariance matrix is

Ht = Ω0 Ω + A0 t−1 0t−1 A + B 0 Ht−1 B (3)

or suppressing the time subscripts and GARCH terms

h11 = c11 + a211 21 + 2a11 a21 1 2 + a221 22

h12 = c12 + a11 a12 21 + (a21 a12 + a11 a22 ) 1 2 + a21 a22 22 (4)
h22 = c13 + a212 21 + 2a12 a22 1 2 + a222 22

The BEKK representation decomposes the GARCH(1,1) process into its mul-
tivariate constituents and models the time-varying process of Ht conditional
on lagged values of the residuals of the mean and variance equation. This
structure enables interaction between the conditional variance and covariance
allowing to observe impact of events arriving to two different markets.

To see whether volatilities across markets have influence on returns we further

expand generic framework of the BEKK to GARCH(1,1)-M-BEKK by inclu-
sion of GARCH terms in mean equations. We employ four bi-variate models
across Turkish and US bond and stock markets. Two models to capture trans-
missions between local bond and stock markets and two model to capture
international transmissions. In these models we also allow for asymmetric ef-
fects, which are important. The mean (5) and variance (6) equations of our
model omitting terms to capture asymmetric effect are
 2 
  σ11,t−1
r1,t = µ11 µ12 2 + 1,t
σ21,t−1
 2  (5)
  σ11,t−1
r2,t = µ21 µ22 2 + 2,t
σ21,t−1
 2 2
     
σ11,t σ12,t c11 c12 α11 α12 11,t−1 12,t−1
2 2 = +
σ21,t σ22,t c21 c22 α21 α22 21,t−1 22,t−1
  2 2
 (6)
β11 β12 σ11,t−1 σ12,t−1
+ 2 2
β21 β22 σ21,t−1 σ22,t−1

where µ12 and µ21 capture effect of counter party volatilities on individuals
returns, β11 and β22 represent persistence in GARCH terms and finally β12
and β21 indicate the level of volatility transmissions from one market to other.
’s are ARCH terms, σ 2 ’s are GARCH terms.

4 Estimation Results

Table (2) reports the results of the bi-variate GARCH(1,1)-M-BEKK models

of US and Turkish Bond and Stock market returns. Volatility transmission in

7
both within the local bond and stock markets and across international bond
and stock markets is observed (See Figure 5). Significance of the GARCH terms
in mean equations depend on model being employed, while in local model they
are significant in international model they show a mixed picture. For ARCH
and asymmetry coefficients pleas refer to Appendix A.2. In all models both
markets in question exhibit persistence in GARCH terms.

Table 2: Estimation Results

Modela 1 2 3 4
Market 1 TR Bond US Bond TR Bond TR Stock
Market 2 TR Stock US Stock US Bond US Stock

Mean Coefficients µ11 -86.40 -59.57 -40.22 2.88

(-2.82**) (-2.26*) (-0.65) (2.73**)

µ12 40.65 59.59 240.98 -17.65

(2.90**) (3.56**) (0.85) (-2.78**)

µ21 -9.55 -19.91 -6.31 -2.89

(-4.53**) (-2.73**) (-0.64) (-0.97)

µ21 2.39 8.11 13.78 4.14

(3.74**) (3.10**) (1.49) (1.05)

GARCH Coefficients β11 0.6923 0.8743 0.7054 0.9365

(15.70**) (25.47**) (14.31**) (47.28**)

β12 -0.5470 0.0525 -0.0392 -0.0180

(-5.84**) (0.67) (-1.60) (-3.11**)

β21 0.0088 0.0074 0.0340 -0.1646

(1.73) (2.49*) (0.67) (-3.33**)

β22 0.9932 0.9172 0.9759 0.9046

(80.15**) (27.58**) (88.16**) (38.65**)

Log Likelihood 3185.45 4205.74 4554.33 2706.28

a
t-values are given in parenthesis, * indicates significance at 5% level,
** indicates significance at %1 level

8
 Figure 5: Conditional Variances and Covariances of Turkish and US Bond and
Stock markets (Covariances indicate transmission of volatility)

(a) Transmission of Volatility Within the Country (Between Bond and Stock Markets in The
Same Country)

(b) Transmission of Volatility Across the Countries (Between Same Markets of Different
Countries)

9
5 Conclusion

The growing international financial integration among markets has significant

effects on transmission of volatilities across markets. In this study we tried to
reflect this by means of bi-variate GARCH framework. Shocks stemming from
US economy not only influence markets of emerging countries like Turkey, they
in some periods dominate the domestic shocks. However in this work there
are also signs of some level of decoupling of Turkish Bond market from its
counter partner in US Corporation Bond market at comparable credit ratings,
indicating positive development of the financial markets in most of emerging
markets in terms of financial stability including Turkey.

Results indicate significant influence of US stock market volatility on Turkish

stock market returns. More over, in Turkey higher volatility in stock mar-
kets significantly leads lower volatility in bond markets indicating direction of
change in portfolio preferences, which is not the case in US. While the opposite
relation, transmission of volatility from bond to stock market, is less clear in
Turkey, it is significant in US. High persistency of volatility in Turkish bond
market is noted and transmission from US bond market to Turkish market is
insignificant. On the other hand, volatility is persistent in stock markets, in
addition to significant transmission across countries. This may be an indica-
tion of more portfolios in stock markets compared to bond markets. We also
find that asymmetry effects are important for transmissions from Turkish stock
market to bond market as well as Turkish stock market to US stock market.
The latter case is probably a reflection of response of US stock markets to
developments in emerging economies, as size of Turkish and US markets are
concerned.

As a further research agenda the interaction of these markets can be investi-

gated by means of time varying level of integration among markets and time
varying pricing of volatilities across markets. Our preliminary time varying
analysis in this subject also indicate existence of time varying patterns. We
can also further enrich the exercise with sub period analysis.

10
 A Appendix

A.1 Rats Code

project.prg

1 display "**********************************************************"
2 display "* IAM 526 TERM PROJECT *"
3 display "* Volatitlity Transmission Accross TR and US markets *"
4 display "* multivariate GARCH(1,1)-M BEKK model *"
5 display "**********************************************************"
6 display "* Zahid Samancioglu *"
7 display "* 07/02/2009 *"
8 display "**********************************************************"
9
10 display "**************************************************************"
11 display "* all variable are weekly log returns excess of US 6m rates. *"
12 display "**************************************************************"
13 display "* bem : Bond Emerging Market (EMBI Global) *"
14 display "* btr : Bond Turkey(EMBI Global) *"
15 display "* bus : Bond United States(Merrill Lynch High Yield) *"
16 display "* bem : Bond Emerging Market (EMBI Global) *"
17 display "* seu : Stock European Union *"
18 display "* str : Stock Turkey *"
19 display "* sus : Stock United States *"
20 display "* swo : Stock World *"
21 display "**************************************************************"
22 display "* rfi : Bond US Treasury 6m Index *"
23 display "* rfr : Bond US Treasury 6m rate *"
24 display "**************************************************************"
25
26 OPEN DATA data2.xls
27 CALENDAR(W) 1996:7:5
28 ALL 2009:01:02
29 DATA(FORMAT=XLS,ORG=COLUMNS) 1996:7:5 2009:01:02 bem btr bus bem seu str sus swo rfi rfr
30 CLOSE DATA
31
32 OPEN STYLES linecolors.gr
33 GRPARM(IMPORT=STYLES)
34 CLOSE STYLES
35
36 TABLE
37
38 COMPUTE gstart=3, gend=652
39
40 DEC SYMM[SERIES] HHS(2,2)
41 DO i=1,2
42 DO j=1,i
43 SET HHS(i,j) gstart gend = 0.0
44 END DO j
45 END DO i
46
47 display ""
48 display "**********************************************************************"
49 display "* Model 1 *"
50 display "* Volatility transmission between TR bond market and TR stock market *"
51 display "**********************************************************************"
52 EQUATION eqm1 btr
53 # HHS(1,1) HHS(2,1)
54 EQUATION eqm2 str
55 # HHS(2,1) HHS(2,2)
56 GROUP garchm eqm1 eqm2
57 INFOBOX(ACTION=define) "please wait . . ."
58 INFOBOX(ACTION=modify) "bivariate GARCH(1,1)-M : Model 1"
59 GARCH(MODEL=garchm,P=1,Q=1,MV=BEKK,MVHSERIES=HHS,DIST=T,ASYMMETRIC,ROBOUSTERRORS,ITERATIONS=1000)
gstart gend
60 INFOBOX(ACTION=remove)
61
62 COMPUTE [VECT[STRING]] labels = ||"TR Bond Market Condional Variance","TR Bond and Stock Market
Covariance","TR Stock Market Condional Variance"||
63 GRAPH(STYLE=LINE,HEADER="Turkish Bond and Stock Markets conditional variances and covariance",KEY=
UPLEFT,KLABEL=labels) 3
64 # HHS(1,1)
65 # HHS(2,1)
66 # HHS(2,2)

11
67 * -<>- *
68
69 display ""
70 display "**********************************************************************"
71 display "* Model 2 *"
72 display "* Volatility transmission between US bond market and US stock market *"
73 display "**********************************************************************"
74 EQUATION eqm1 bus
75 # HHS(1,1) HHS(2,1)
76 EQUATION eqm2 sus
77 # HHS(2,1) HHS(2,2)
78 GROUP garchm eqm1 eqm2
79 INFOBOX(ACTION=define) "please wait . . ."
80 INFOBOX(ACTION=modify) "bivariate GARCH(1,1)-M : Model 2"
81 GARCH(MODEL=garchm,P=1,Q=1,MV=BEKK,MVHSERIES=HHS,DIST=T,ASYMMETRIC,ROBOUSTERRORS,ITERATIONS=1000)
gstart gend
82 INFOBOX(ACTION=remove)
83
84 COMPUTE [VECT[STRING]] labels = ||"US Bond Market Condional Variance","US Bond and Stock Market
Covariance","US Stock Market Condional Variance"||
85 GRAPH(STYLE=LINE,HEADER="US Bond and Stock Markets conditional variances and covariance",KEY=UPLEFT,
KLABEL=labels) 3
86 # HHS(1,1)
87 # HHS(2,1)
88 # HHS(2,2)
89 * -<>- *
90
91 display ""
92 display "**********************************************************************"
93 display "* Model 3 *"
94 display "* Volatility transmission between TR bond market and US bond market *"
95 display "**********************************************************************"
96 EQUATION eqm1 btr
97 # HHS(1,1) HHS(2,1)
98 EQUATION eqm2 bus
99 # HHS(2,1) HHS(2,2)
100 GROUP garchm eqm1 eqm2
101 INFOBOX(ACTION=define) "please wait . . ."
102 INFOBOX(ACTION=modify) "bivariate GARCH(1,1)-M : Model 3"
103 GARCH(MODEL=garchm,P=1,Q=1,MV=BEKK,MVHSERIES=HHS,DIST=T,ASYMMETRIC,ROBOUSTERRORS,ITERATIONS=1000)
gstart gend
104 INFOBOX(ACTION=remove)
105
106 COMPUTE [VECT[STRING]] labels = ||"TR Bond Market Condional Variance","TR and US Bond Market
Covariance","US Bond Market Condional Variance"||
107 GRAPH(STYLE=LINE,HEADER="Turkish and US Bond Markets conditional variances and covariance",KEY=UPLEFT,
KLABEL=labels) 3
108 # HHS(1,1)
109 # HHS(2,1)
110 # HHS(2,2)
111 * -<>- *
112
113 display ""
114 display "**********************************************************************"
115 display "* Model 4 *"
116 display "* Volatility transmission between TR stock market and US stock market*"
117 display "**********************************************************************"
118 EQUATION eqm1 str
119 # HHS(1,1) HHS(2,1)
120 EQUATION eqm2 sus
121 # HHS(2,1) HHS(2,2)
122 GROUP garchm eqm1 eqm2
123 INFOBOX(ACTION=define) "please wait . . ."
124 INFOBOX(ACTION=modify) "bivariate GARCH(1,1)-M : Model 4"
125 GARCH(MODEL=garchm,P=1,Q=1,MV=BEKK,MVHSERIES=HHS,DIST=T,ASYMMETRIC,ROBOUSTERRORS,ITERATIONS=1000)
gstart gend
126 INFOBOX(ACTION=remove)
127
128 COMPUTE [VECT[STRING]] labels = ||"TR Stock Market Condional Variance","TR and US Stock Market
Covariance","US Stock Market Condional Variance"||
129 GRAPH(STYLE=LINE,HEADER="Turkish and US Stock Markets conditional variances and covariance",KEY=UPLEFT
,KLABEL=labels) 3
130 # HHS(1,1)
131 # HHS(2,1)
132 # HHS(2,2)
133 * -<>- *

12
 A.2 Rats Output

project.out

1 **********************************************************
2 * IAM 526 TERM PROJECT *
3 * Volatitlity Transmission Accross TR and US markets *
4 * multivariate GARCH(1,1)-M BEKK model *
5 **********************************************************
6 * Zahid Samancioglu *
7 * 07/02/2009 *
8 **********************************************************
9 **************************************************************
10 * all variable are weekly log returns excess of US 6m rates. *
11 **************************************************************
12 * bem : Bond Emerging Market (EMBI Global) *
13 * btr : Bond Turkey(EMBI Global) *
14 * bus : Bond United States(Merrill Lynch High Yield) *
15 * bem : Bond Emerging Market (EMBI Global) *
16 * seu : Stock European Union *
17 * str : Stock Turkey *
18 * sus : Stock United States *
19 * swo : Stock World *
20 **************************************************************
21 * rfi : Bond US Treasury 6m Index *
22 * rfr : Bond US Treasury 6m rate *
23 **************************************************************
24 Series Obs Mean Std Error Minimum Maximum
25 BEM 653 -0.0005072615 0.0288559572 -0.2016469946 0.1207518607
26 BTR 653 0.0013579077 0.0172231626 -0.1314348987 0.1285250156
27 BUS 653 -0.0000270825 0.0099805435 -0.1151401306 0.0453838178
28 SEU 653 -0.0001738006 0.0230387845 -0.1554412097 0.0860112165
29 STR 653 0.0004284802 0.0626342853 -0.3214215041 0.2033761770
30 SUS 653 -0.0002534496 0.0207816388 -0.1550224529 0.0842399182
31 SWO 653 -0.0004429775 0.0199144148 -0.1534098904 0.0750931579
32 RFI 653 1.3043199694 0.1604016946 1.0010460289 1.5787622961
33 RFR 653 3.7182676876 1.7616523821 0.1370000000 6.5300000000
34
35
36 **********************************************************************
37 * Model 1 *
38 * Volatility transmission between TR bond market and TR stock market *
39 **********************************************************************
40
41 MV-GARCH, BEKK - Estimation by BFGS
42 Convergence in 138 Iterations. Final criterion was 0.0000000 <= 0.0000100
43 With Heteroscedasticity/Misspecification Adjusted Standard Errors
44 Weekly Data From 1996:07:19 To 2008:12:26
45 Usable Observations 650
46 Log Likelihood 3185.44655814
47
48 Variable Coeff Std Error T-Stat Signif
49 *******************************************************************************
50 1. HHS(1,1) -86.40409801 30.63454443 -2.82048 0.00479520
51 2. HHS(2,1) 40.64735094 14.02430642 2.89835 0.00375131
52 3. HHS(2,1) -9.54708965 2.10699422 -4.53114 0.00000587
53 4. HHS(2,2) 2.39176188 0.63993717 3.73749 0.00018586
54 5. C(1,1) -0.00282567 0.00046819 -6.03527 0.00000000
55 6. C(2,1) -0.00335052 0.00360583 -0.92920 0.35278770
56 7. C(2,2) -0.00593869 0.00202150 -2.93777 0.00330580
57 8. A(1,1) 0.53344386 0.07455027 7.15549 0.00000000
58 9. A(1,2) 1.04788746 0.16594170 6.31479 0.00000000
59 10. A(2,1) -0.00860885 0.01282443 -0.67129 0.50203893
60 11. A(2,2) 0.11707076 0.04404393 2.65805 0.00785954
61 12. B(1,1) 0.69228644 0.04410151 15.69757 0.00000000
62 13. B(1,2) -0.54702541 0.09374129 -5.83548 0.00000001
63 14. B(2,1) 0.00884797 0.00512787 1.72547 0.08444339
64 15. B(2,2) 0.99316950 0.01239216 80.14500 0.00000000
65 16. D(1,1) 0.83463573 0.02904128 28.73963 0.00000000
66 17. D(1,2) 1.80637174 0.18405635 9.81423 0.00000000
67 18. D(2,1) -0.01325632 0.01616933 -0.81984 0.41230536
68 19. D(2,2) -0.16742084 0.06079816 -2.75372 0.00589230
69 20. Shape 4.87546938 0.53910295 9.04367 0.00000000

13
70
71
72 **********************************************************************
73 * Model 2 *
74 * Volatility transmission between US bond market and US stock market *
75 **********************************************************************
76
77 MV-GARCH, BEKK - Estimation by BFGS
78 NO CONVERGENCE IN 134 ITERATIONS
79 LAST CRITERION WAS 0.0000000
80 SUBITERATIONS LIMIT EXCEEDED. ESTIMATION POSSIBLY HAS STALLED OR MACHINE ROUNDOFF IS MAKING FURTHER
PROGRESS DIFFICULT.
81 TRY HIGHER SUBITERATIONS LIMIT, TIGHTER CVCRIT, DIFFERENT SETTING FOR EXACTLINE OR ALPHA ON NLPAR.
82 RESTARTING ESTIMATION FROM LAST ESTIMATES OR DIFFERENT INITIAL GUESSES MIGHT ALSO WORK
83 With Heteroscedasticity/Misspecification Adjusted Standard Errors
84 Weekly Data From 1996:07:19 To 2008:12:26
85 Usable Observations 650
86 Log Likelihood 4205.74301915
87
88 Variable Coeff Std Error T-Stat Signif
89 *******************************************************************************
90 1. HHS(1,1) -59.57179422 26.33266923 -2.26228 0.02368029
91 2. HHS(2,1) 59.59126389 16.72872197 3.56221 0.00036774
92 3. HHS(2,1) -19.91449981 7.30297693 -2.72690 0.00639321
93 4. HHS(2,2) 8.11140882 2.61390996 3.10317 0.00191459
94 5. C(1,1) -0.00117559 0.00038656 -3.04115 0.00235673
95 6. C(2,1) -0.00213232 0.00000039 -5409.18656 0.00000000
96 7. C(2,2) 0.00339754 0.00118203 2.87434 0.00404873
97 8. A(1,1) 0.26190448 0.10686433 2.45081 0.01425340
98 9. A(1,2) 0.81176168 0.17191313 4.72193 0.00000234
99 10. A(2,1) 0.02736542 0.00000412 6646.26301 0.00000000
100 11. A(2,2) -0.28262780 0.05698144 -4.96000 0.00000070
101 12. B(1,1) 0.87433798 0.03432960 25.46892 0.00000000
102 13. B(1,2) 0.05251226 0.07802960 0.67298 0.50096084
103 14. B(2,1) 0.00740777 0.00297805 2.48746 0.01286603
104 15. B(2,2) 0.91723659 0.03326287 27.57539 0.00000000
105 16. D(1,1) 0.47038624 0.14285781 3.29269 0.00099234
106 17. D(1,2) -0.17910762 0.47918045 -0.37378 0.70856870
107 18. D(2,1) -0.01520470 0.01587057 -0.95804 0.33804074
108 19. D(2,2) 0.23292460 0.17086228 1.36323 0.17281002
109 20. Shape 5.94868753 0.82579579 7.20358 0.00000000
110
111
112 **********************************************************************
113 * Model 3 *
114 * Volatility transmission between TR bond market and US bond market *
115 **********************************************************************
116
117 MV-GARCH, BEKK - Estimation by BFGS
118 Convergence in 191 Iterations. Final criterion was 0.0000000 <= 0.0000100
119 With Heteroscedasticity/Misspecification Adjusted Standard Errors
120 Weekly Data From 1996:07:19 To 2008:12:26
121 Usable Observations 650
122 Log Likelihood 4554.33305119
123
124 Variable Coeff Std Error T-Stat Signif
125 *******************************************************************************
126 1. HHS(1,1) -40.2243344 61.6725547 -0.65222 0.51425653
127 2. HHS(2,1) 240.9809361 283.8569496 0.84895 0.39590798
128 3. HHS(2,1) -6.3114287 9.9244211 -0.63595 0.52480947
129 4. HHS(2,2) 13.7754844 9.2266757 1.49301 0.13543556
130 5. C(1,1) 0.0027674 0.0005803 4.76879 0.00000185
131 6. C(2,1) 0.0005214 0.0004152 1.25566 0.20923906
132 7. C(2,2) 0.0006508 0.0002214 2.93952 0.00328719
133 8. A(1,1) 0.7960752 0.1276379 6.23698 0.00000000
134 9. A(1,2) 0.1430331 0.0547812 2.61099 0.00902803
135 10. A(2,1) 0.0566060 0.0903547 0.62649 0.53099585
136 11. A(2,2) 0.0240454 0.0831200 0.28928 0.77236331
137 12. B(1,1) 0.7053851 0.0492993 14.30821 0.00000000
138 13. B(1,2) -0.0391657 0.0244233 -1.60362 0.10879798
139 14. B(2,1) 0.0339944 0.0504449 0.67389 0.50037926
140 15. B(2,2) 0.9758916 0.0110691 88.16347 0.00000000
141 16. D(1,1) 0.2360333 0.4558183 0.51782 0.60458163
142 17. D(1,2) 0.0126311 0.1005693 0.12560 0.90005196
143 18. D(2,1) -0.1169915 0.1498751 -0.78059 0.43504184
144 19. D(2,2) -0.2651012 0.0720139 -3.68125 0.00023209
145 20. Shape 3.8369445 0.5101902 7.52062 0.00000000

14
146
147
148 **********************************************************************
149 * Model 4 *
150 * Volatility transmission between TR stock market and US stock market*
151 **********************************************************************
152
153 MV-GARCH, BEKK - Estimation by BFGS
154 Convergence in 182 Iterations. Final criterion was 0.0000000 <= 0.0000100
155 With Heteroscedasticity/Misspecification Adjusted Standard Errors
156 Weekly Data From 1996:07:19 To 2008:12:26
157 Usable Observations 650
158 Log Likelihood 2706.28195677
159
160 Variable Coeff Std Error T-Stat Signif
161 *******************************************************************************
162 1. HHS(1,1) 2.88107595 1.05384970 2.73386 0.00625969
163 2. HHS(2,1) -17.64796175 6.35741501 -2.77597 0.00550381
164 3. HHS(2,1) -2.89093551 2.97118088 -0.97299 0.33055723
165 4. HHS(2,2) 4.13666245 3.93110947 1.05229 0.29266707
166 5. C(1,1) 0.01458708 0.00262935 5.54780 0.00000003
167 6. C(2,1) 0.00427641 0.00085495 5.00193 0.00000057
168 7. C(2,2) -0.00000030 0.00068593 -4.34730e-04 0.99965314
169 8. A(1,1) 0.12387864 0.06564321 1.88715 0.05914004
170 9. A(1,2) 0.04814699 0.01565982 3.07456 0.00210816
171 10. A(2,1) 0.34873015 0.11589343 3.00906 0.00262058
172 11. A(2,2) -0.08030850 0.04344508 -1.84851 0.06452913
173 12. B(1,1) 0.93654371 0.01981047 47.27518 0.00000000
174 13. B(1,2) -0.01800590 0.00578476 -3.11264 0.00185419
175 14. B(2,1) -0.16458176 0.04942188 -3.33014 0.00086803
176 15. B(2,2) 0.90462208 0.02340425 38.65204 0.00000000
177 16. D(1,1) -0.11932696 0.05737435 -2.07980 0.03754423
178 17. D(1,2) 0.00277890 0.01928477 0.14410 0.88542293
179 18. D(2,1) -0.81043552 0.17530118 -4.62310 0.00000378
180 19. D(2,2) -0.55229368 0.07929163 -6.96535 0.00000000
181 20. Shape 10.18311927 2.10278850 4.84267 0.00000128

15
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