Spillover Effects in Global Financial Markets: The Global Vector Autoregressive Model Application

Using the Bayesian Global Vector Autoregressive (BGVAR) model, this study explores the spillover effects in global financial markets over the period January 1 2005 to December 31 2015 using daily data. By applying a positive shock to the US TED spread, the Libor overnight index swap and the VIX index, the findings of the study revealed that most stock markets experienced declines in their stock indices following a 10% positive shock to the US TED spread, with exceptions such as the FTSE 100 which initially increased before declining. Volatility indices for several markets showed signs of heightened volatility, while currency exchange rates and government bonds remained relatively stable. Specific reactions were observed in Japan, France, Germany and the UK to different shocks, with Korea responding negatively to a positive shock to the VIX index due to capital reallocation from risky assets.