Volatility and causality study of the daily returns on the Bucharest Stock Exchange during 2007-2011

Panait, Iulian and Slavescu, Ecaterina Oana (2011): Volatility and causality study of the daily returns on the Bucharest Stock Exchange during 2007-2011. Published in: Proceeding of the 17th International Conference The Knowledge-Based Organization – Economic, Social and Administrative Approaches to the Knowledge-Based Organization (October 2011): pp. 292-300.

Abstract

International capital markets tend to be characterized by volatility, which is always a function of world economic and political environment and is frequently associated with contagion risk and increased cross-market linkages. This phenomenon affects both developed markets and emerging markets, and, being integrated in the context of international financial markets through the globalization process, Romanian capital market could not avoid external influencing factors amplificated by economic recession. We have analyzed the the influence of the international capital markets on the evolution of Bucharest Stock Exchange during 2007-2011 in two separate periods (during the 2007-2009 crisis and after the crisis), using correlation analysis and Granger causality tests on daily data. Our main interest was to see if and how the behavior of the Bucharest Stock Exchange was different during the crisis and after the crisis and how the volatility of the Romanian market changed in the post crisis period. Our results confirmed the high degree of interconnectivity between financial markets revealed by general theory, showing that there was a high degree of correlation between the Romanian stock market and international markets during the 2007-2009, but afterwards the intensity of this correlation slightly declined. Another conclusion was that during the whole 2007-2011 period there was a clear one-way causality induced from the international capital markets towards Bucharest Stock Exchange.

• Item Type: MPRA Paper
• Language: English
• Keywords: data mining, Granger, correlation, crisis, stock markets, volatility
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; G - Financial Economics > G0 - General > G01 - Financial Crises

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