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Estimation of Volatilities and Spillover Effects Between Developed and Emerging Market Economies

Kharchenko, Iryna LU and Tzvetkov, Plamen LU (2013) NEKN02 20131
Department of Economics
Abstract
This study focuses on establishing the existence of volatility spillover effects between stock indices that represent developed and emerging markets. We employ a CGARCH(1,1) model, which distinguishes between the short-term (transitory) and long-term (permanent) conditional variance, allowing us to simultaneously examine the time trends of changes in volatility and spillover effects between developed and growing economies. Our data sample covers a period from January 1995 to April 2013 and is further broken down into two subsamples from January 1995 to January 2008 and from January 2008 to April 2013, which respectively represent periods before and after the global financial crisis. We find some evidence that volatility spillover moves in... (More)
This study focuses on establishing the existence of volatility spillover effects between stock indices that represent developed and emerging markets. We employ a CGARCH(1,1) model, which distinguishes between the short-term (transitory) and long-term (permanent) conditional variance, allowing us to simultaneously examine the time trends of changes in volatility and spillover effects between developed and growing economies. Our data sample covers a period from January 1995 to April 2013 and is further broken down into two subsamples from January 1995 to January 2008 and from January 2008 to April 2013, which respectively represent periods before and after the global financial crisis. We find some evidence that volatility spillover moves in a uni-directional way from the developed to the emerging markets when examining the whole period. In our full sample, we conclude spillover from the USA to China, as well as from France and Germany to Russia. Although, when we break our data into the subsamples, volatility before the crisis exhibits a flow from the emerging market of India to the USA. Our subsample after the crisis determines volatility spillover from all developed markets to India. Through testing the standardized residuals of the model as well as examining information criterion parameters we concluded that the CGARCH(1,1) has captured the ARCH effects and is sufficient for the purposes of the study. (Less)
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author
Kharchenko, Iryna LU and Tzvetkov, Plamen LU
supervisor
organization
course
NEKN02 20131
year
type
H1 - Master's Degree (One Year)
subject
keywords
Volatility of stock returns, CGARCH, Spillover effects, Emerging markets
language
English
id
3801343
date added to LUP
2013-06-12 14:42:34
date last changed
2013-06-14 11:41:31
@misc{3801343,
  abstract     = {This study focuses on establishing the existence of volatility spillover effects between stock indices that represent developed and emerging markets. We employ a CGARCH(1,1) model, which distinguishes between the short-term (transitory) and long-term (permanent) conditional variance, allowing us to simultaneously examine the time trends of changes in volatility and spillover effects between developed and growing economies. Our data sample covers a period from January 1995 to April 2013 and is further broken down into two subsamples from January 1995 to January 2008 and from January 2008 to April 2013, which respectively represent periods before and after the global financial crisis. We find some evidence that volatility spillover moves in a uni-directional way from the developed to the emerging markets when examining the whole period. In our full sample, we conclude spillover from the USA to China, as well as from France and Germany to Russia. Although, when we break our data into the subsamples, volatility before the crisis exhibits a flow from the emerging market of India to the USA. Our subsample after the crisis determines volatility spillover from all developed markets to India. Through testing the standardized residuals of the model as well as examining information criterion parameters we concluded that the CGARCH(1,1) has captured the ARCH effects and is sufficient for the purposes of the study.},
  author       = {Kharchenko, Iryna and Tzvetkov, Plamen},
  keyword      = {Volatility of stock returns,CGARCH,Spillover effects,Emerging markets},
  language     = {eng},
  note         = {Student Paper},
  title        = {Estimation of Volatilities and Spillover Effects Between Developed and Emerging Market Economies},
  year         = {2013},
}