Spatial and Spatiotemporal Volatility Models: A Review

TL;DR

This paper provides a comprehensive review of spatial and spatiotemporal volatility models, discussing their specifications, estimation methods, and applications, while highlighting future research directions.

Contribution

It offers a detailed comparison of existing models and practical recommendations, filling a gap in the literature on spatial volatility modeling.

Findings

Comparison of various models and their estimation strategies

Practical guidelines for model selection and application

Identification of gaps and future research directions

Abstract

Spatial and spatiotemporal volatility models are a class of models designed to capture spatial dependence in the volatility of spatial and spatiotemporal data. Spatial dependence in the volatility may arise due to spatial spillovers among locations; that is, if two locations are in close proximity, they can exhibit similar volatilities. In this paper, we aim to provide a comprehensive review of the recent literature on spatial and spatiotemporal volatility models. We first briefly review time series volatility models and their multivariate extensions to motivate their spatial and spatiotemporal counterparts. We then review various spatial and spatiotemporal volatility specifications proposed in the literature along with their underlying motivations and estimation strategies. Through this analysis, we effectively compare all models and provide practical recommendations for their appropriate usage. We highlight possible extensions and conclude by outlining directions for future research.