Correlation Dynamics in European Equity Markets

Colm Kearney () and Valerio Potì ()

Finance from EconWPA

Abstract: We examine correlation dynamics using daily data from 1993 to 2002 on the 5 largest eurozone stock market indices. We also study, for comparison, the correlations of a sample of individual stocks. We employ both unconditional and conditional estimation methodologies,including estimation of the conditional correlations using the symmetric and asymmetric DCC-MVGARCH model, extended with the inclusion of a deterministic time trend. We confirm the presence of a structural break in market index correlations reported by previous researchers and, using an innovative likelihood-based search, we find that it occurred at the beginning the process of monetary integration in the Euro-zone. We find mixed evidence of asymmetric correlation reactions to news of the type modelled by conventional asymmetric DCC-MVGARCH specifications.

Keywords: Correlation Dynamics; GARCH (search for similar items in EconPapers)
JEL-codes: C32 G12 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-fin
Date: 2005-07-06
Note: Type of Document - pdf; pages: 26. Forthcoming
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Journal Article: Correlation dynamics in European equity markets (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0507008

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