Financial Stock Market Co-movement and Correlation: Evidence in the European Union (EU) Area Before and After the October 2008 Financial Crisis

Serdar Neslihanoglu ()
Additional contact information
Serdar Neslihanoglu: Eskisehir Osmangazi University

No 2604587, Proceedings of International Academic Conferences from International Institute of Social and Economic Sciences

Abstract: This paper investigates the effect that the financial stock market had on co-movement and correlation when modeling and forecasting individual financial stock market. According to both the Capital Asset Pricing Model (CAPM) (Sharpe-Linter-Mossin, 1960?s) and portfolio theory (Markowitz, 1952), the likely presence of correlations between various financial stock markets is an important issue for stock market portfolio managers; for example, in terms of portfolio diversification, it could reduce overall portfolio risk. Hence, we propose a multivariate extension of the conditional CAPM with a time-varying beta using the state space model; this, in turn, would allow the correlation between financial stock markets to be utilized during the estimation process. This paper presents evidence based on monthly data generated by several EU area financial stock markets before and after the October 2008 financial crisis and forecasting 1 year into the future. The empirical results overwhelmingly support one?s considering the financial stock market co-movement and correlation structure when modeling and forecasting individual EU area financial stock markets.

Keywords: CAPM; Co-movement and Correlation; EU Area Financial Stock Markets; October 2008 Financial Crisis; Multivariate State Space Model; Systematic Risk. (search for similar items in EconPapers)
JEL-codes: C19 C52 C58 (search for similar items in EconPapers)
Pages: 1 page
Date: 2015-07
New Economics Papers: this item is included in nep-for and nep-rmg
References: Add references at CitEc
Citations:

Published in Proceedings of the Proceedings of the 17th International Academic Conference, Vienna, Jul 2015, pages 318-318

Downloads: (external link)
https://iises.net/proceedings/17th-international-a ... =26&iid=063&rid=4587 First version, 2015

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sek:iacpro:2604587

Access Statistics for this paper

More papers in Proceedings of International Academic Conferences from International Institute of Social and Economic Sciences
Bibliographic data for series maintained by Klara Cermakova ().