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Neighbours, but yet different? Scandinavian stock market volatility and its drivers under different regimes. A GARCH-MIDAS approach

Uendes, Buelent LU (2019) NEKN01 20191
Department of Economics
Abstract
This study is an initial attempt to investigate the differences and similarities of the stock market volatilities in Scandinavia with respect to their drivers. Using the GARCH-MIDAS (Mixed Data Sampling) framework, this paper evaluates the explanatory value of various variables originating from different areas, covering the period from February 1998 to December 2018. Considered categories include business cycle indicators, monetary policy, economic policy uncertainty indices and oil shocks. A principal component analysis is used to proxy the state of the U.S. economy. To gain a deeper insight into the dynamic volatility behaviour, this study focuses on different regimes, namely the Pre-GFC and the Post-GFC era. The Danish equity market... (More)
This study is an initial attempt to investigate the differences and similarities of the stock market volatilities in Scandinavia with respect to their drivers. Using the GARCH-MIDAS (Mixed Data Sampling) framework, this paper evaluates the explanatory value of various variables originating from different areas, covering the period from February 1998 to December 2018. Considered categories include business cycle indicators, monetary policy, economic policy uncertainty indices and oil shocks. A principal component analysis is used to proxy the state of the U.S. economy. To gain a deeper insight into the dynamic volatility behaviour, this study focuses on different regimes, namely the Pre-GFC and the Post-GFC era. The Danish equity market shows overall the greatest exposure to the business cycle and monetary policy. While for Denmark the link between the real economy and the market volatility (slightly) increased after the GFC, a reverse trend can be seen for Norway. Among the economic policy uncertainty variables, both the American and the Swedish index affect the markets of Scandinavia, while no such link can be found for the European version. Real oil prices are of no explanatory value for no subsample considered and a declining exposure to oil shocks is revealed. While statistically relevant for the full sample across all countries, the proxy for the U.S. economy is only significant for Denmark when discarding the period of the GFC. (Less)
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author
Uendes, Buelent LU
supervisor
organization
course
NEKN01 20191
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Scandinavia, Stock market, Volatility, GARCH-MIDAS
language
English
id
8981739
date added to LUP
2019-08-08 10:31:12
date last changed
2019-08-08 10:31:12
@misc{8981739,
  abstract     = {This study is an initial attempt to investigate the differences and similarities of the stock market volatilities in Scandinavia with respect to their drivers. Using the GARCH-MIDAS (Mixed Data Sampling) framework, this paper evaluates the explanatory value of various variables originating from different areas, covering the period from February 1998 to December 2018. Considered categories include business cycle indicators, monetary policy, economic policy uncertainty indices and oil shocks. A principal component analysis is used to proxy the state of the U.S. economy. To gain a deeper insight into the dynamic volatility behaviour, this study focuses on different regimes, namely the Pre-GFC and the Post-GFC era. The Danish equity market shows overall the greatest exposure to the business cycle and monetary policy. While for Denmark the link between the real economy and the market volatility (slightly) increased after the GFC, a reverse trend can be seen for Norway. Among the economic policy uncertainty variables, both the American and the Swedish index affect the markets of Scandinavia, while no such link can be found for the European version. Real oil prices are of no explanatory value for no subsample considered and a declining exposure to oil shocks is revealed. While statistically relevant for the full sample across all countries, the proxy for the U.S. economy is only significant for Denmark when discarding the period of the GFC.},
  author       = {Uendes, Buelent},
  keyword      = {Scandinavia,Stock market,Volatility,GARCH-MIDAS},
  language     = {eng},
  note         = {Student Paper},
  title        = {Neighbours, but yet different? Scandinavian stock market volatility and its drivers under different regimes. A GARCH-MIDAS approach},
  year         = {2019},
}