TY  - JOUR
AU  - Rigobon,Roberto
AU  - Sack,Brian
TI  - Spillovers Across U.S. Financial Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9640
PY  - 2003
Y2  - April 2003
UR  - http://www.nber.org/papers/w9640
L1  - http://www.nber.org/papers/w9640.pdf
N1  - Author contact info:
Roberto Rigobon
MIT Sloan School of Management
100 Main Street, E62-516
Cambridge, MA 02142
Tel: 617/258-8374
Fax: 617/258-6855
E-Mail: rigobon@mit.edu

Brian Sack
Executive Vice President and Head of Markets Group
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
E-Mail: brian.sack@ny.frb.org
AB  - Movements in the prices of different assets are likely to directly influence one another. This paper develops a model that identifies the contemporaneous interactions between asset prices in U.S. financial markets by relying on the heteroskedasticity in their movements. In particular, we estimate a  structural-form GARCH' model that includes the short-term interest rate, the long-term interest rate, and the stock market. The results indicate that there are strong contemporaneous interactions between these variables. Accounting for this behavior is critical for interpreting daily changes in asset prices and for predicting the future paths of their variances and correlations. We demonstrate the importance of this consideration in a risk-management application.
ER  -