Explaining international stock correlations with CPI fluctuations and market volatility

Yijie Cai, Ray Chou and Dan Li

Journal of Banking & Finance, 2009, vol. 33, issue 11, 2026-2035

Abstract: This paper investigates the dynamic correlations among six international stock market indices and their relationship to inflation fluctuation and market volatility. The current research uses a newly developed time series model, the Double Smooth Transition Conditional Correlation with Conditional Auto Regressive Range (DSTCC-CARR) model. Findings reveal that international stock correlations are significantly time-varying and the evolution among them is related to cyclical fluctuations of inflation rates and stock volatility. The higher/lower correlations emerge between countries when both countries experience a contractionary/expansionary phase or higher/lower volatilities.

Keywords: International; stock; markets; CPI; rates; Global; volatility; Smooth; transition; CARR (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (70)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:33:y:2009:i:11:p:2026-2035

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