Volatility and dynamic conditional correlations of European emerging stock markets

Baumohl, Eduard and Lyocsa, Stefan (2013): Volatility and dynamic conditional correlations of European emerging stock markets.

Abstract

This study examines the relationship between time-varying correlations and conditional volatility among eight European emerging stock markets and the MSCI World stock market index from January 2000 to December 2012. Correlations are estimated in the standard and asymmetric dynamic conditional correlation (DCC) model frameworks. The results can be summarized by three main findings: (1) asymmetry in volatility is not a common phenomenon in emerging markets; (2) asymmetry in correlations is found only with respect to the Hungarian stock market; and (3) the relationship between volatility and correlations is positive and significant in all countries included in the study. Thus, diversification benefits decrease during periods of higher volatility.

• Item Type: MPRA Paper
• Language: English
• Keywords: conditional volatility, time-varying correlations, emerging markets
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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