Volatility Links between U.S. Industries

I investigate volatility linkages between 30 U.S. industries by examining their Granger-causal volatility structure and quantifying the amount of volatility that spills over from industry i to industry j. I apply the volatility spillovers index of Diebold and Yilmaz (2009) on industry-specific residuals obtained from a variance model regressing quarterly realized variances on past variances and latent factor variances. I find that the volatility transmission mechanism between industries builds a web of volatility relationships in the sense that industry i can be either directly related to industry j or indirectly related to j through industry k. I identify the business equipment, the manufacturing and the financial intermediation industry as industries k through which the entire economic system can be either stimulated when the economy is contracting or cooled when the economy is expanding