The transfer/ transmission of volatility or instability from a market to another market, or from a sector to another. It occurs when the volatility of price or rate (or cost of assets or economic resources) in a specific market causes a lagged impact on volatility in another market (destination market), beyond the normal volatility levels in the destination market.

Spillover volatility is also defined as the bidirectional movement of volatility among markets or unidirectional volatility flow from one market to another.

For example, volatility spillover effects may initiate at the stock market of the United States and transmit to BRICS (Brazil, Russia, India, China and South Africa).

Volatility may also spill over from a sector in the market to another. The rapid growth of the crypto ecosystem and its connection with the broader financial system have created a sense of interrelationship between the volatility of cryptoassets and other traditional assets in the financial system.