Does the Spillover Index Respond to Adverse Shocks? A Bootstrap-Based Probabilistic Analysis

The spillover index developed by Diebold and Yilmaz (Economic Journal, 2009, vol. 119, pp. 158–171) is widely used to measure connectedness in economics and finance. Abrupt increases in the spillover index are thought to result from major economic and financial events, but formal evidence of this relationship is scarce. We develop a bootstrap-based technique to evaluate the probability that the value of the spillover index changes following an exogenously defined event. We revisit the original dataset from Diebold and Yilmaz and obtain qualified support for their finding that the spillover index increases in a timely manner in the wake of the adverse shocks.