Spillover effects and conditional dependence

A better understanding of cross-market linkages and interactions would help to better manage international financial exposure. So far, no attempt has been made to investigate the degree of price and volatility spillovers in a non-Gaussian conditional framework. We present a new model for these transmission mechanisms that relies on asymmetric-t marginal distributions and a copula function to characterize the conditional dependence. Rendering the dependence parameter time varying, we investigate how the dependence structure is affected by stock return innovations.