Title: Volatility spillovers across the swap markets: evidence from US, Australian, and Japanese swap markets

Authors: Vivek Bhargava; D.K. Malhotra; George Tsetsekos

Addresses: Graduate Business Programs, Alcorn State University, 9 Campus Drive, Natchez, MS, USA ' School of Business Administration, Philadelphia University, School House Lane and Henry Avenue, Philadelphia, PA 19144-5497, USA ' Department of Finance, Drexel University, Philadelphia, PA, USA

Abstract: In this paper, we examine the inter-market relationship of volatility of the swap spreads among three swap markets: US dollar interest rate swaps, Japanese interest rate swaps, and Australian interest rate swaps. Data for swaps with maturities of two-, five-, and ten-years are used and it covers the period of economic crisis that started in 2007. There is evidence of increased volatility of swap spreads during the year 2008. We also find that market integration increases with maturity across the three swap markets. Furthermore, there is volatility spillover from the USA to Japan and from US to Australian swap markets. There is also evidence of spillover from Australian swap market to both US and Japanese swap markets. The spillover from the US and Australian swap markets to Japanese swap markets is asymmetric.

Keywords: currency swaps; volatility spillovers; interest rate swaps; swap markets; USA; United States; Australia; Japan; financial crisis; market integration.

DOI: 10.1504/IJBD.2016.075451

International Journal of Bonds and Derivatives, 2016 Vol.2 No.1, pp.59 - 86

Received: 02 Mar 2015
Accepted: 23 Apr 2015
Published online: 23 Mar 2016 *

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