Contemporaneous Spillover Effects between the U.S. and the U.K. Equity Markets

We use high frequency data and the “identification through heteroskedasticity” approach of Rigobon (2003) to capture the contemporaneous volatility spillover effects between the U.S. and U.K. equity markets. We demonstrate the relevance of taking into account the information present during simultaneous trading hours by comparing the results generated by our structural vector autoregression with those of a traditional reduced‐form vector autoregression. Our findings clearly demonstrate that contemporaneous relations matter and that ignoring them leads to inappropriate conclusions regarding the magnitude and direction of volatility spillover.