Volatility Spillovers in Emerging Markets During the Global Financial Crisis: Diagonal BEKK Approach

Erten, Irem and Tuncel, Murat B. and Okay, Nesrin (2012): Volatility Spillovers in Emerging Markets During the Global Financial Crisis: Diagonal BEKK Approach.

Abstract

The fundamental aim of the paper is to analyze the presence and magnitude of the volatility transmissions in emerging markets, namely India, Hungary, Poland, Turkey and Brazil prior to, and during the latest financial turmoil. Using weekly returns of stock market indices from 2005 to 2011, the study applies Multivariate BEKK Methodology. The empirical results indicate that there exist significant volatility spillover effects for all five countries, though the spillovers are not homogeneous across the pairs. Results exhibit very large GARCH and relatively low ARCH effects. The study provides evidence of high level of financial integration in emerging markets. From an investor perspective, one important implication is that adding stocks from different emerging markets to a porfolio does not lead to risk reduction.

• Item Type: MPRA Paper
• Language: English
• Keywords: Volatility Spillovers; Diagonal BEKK; Multivariate GARCH; Equity Markets
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; 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

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