THE EFFECTS OF VOLATILITY AND CHANGES IN CONDITIONAL CORRELATIONS IN THE STOCK MARKETS OF RUSSIA AND DEVELOPED COUNTRIES

Oleg Salmanov, Natalia V. Babina, Marina V. Samoshkina, Irina P. Drachena and Irina P. Salmanova

Economic Annals, 2020, vol. 65, issue 227, 67 - 94

Abstract: The aim of this article is to identify patterns of profitability volatil-ity and to establish the degree of dynamic conditional correlation between the stock markets of developed countries and those of Russia. This issue is important for in-vestment strategies and the international diversification of investments. We use the BEKK-GARCH, CCC-GARCH, and DCC-GARCH models and show that the corre-lation between the Russian stock market and the markets of the USA, UK, Germany, and France has decreased significantly in recent years. We find that while the corre-lation between the Russian market and the mature European markets is bidirectional, the relationship between the US market and the Russian market is unidirectional. An assessment of the transfer of volatil-ity from all of the mature markets to the Russian market establishes its statistical significance and shows that feedback from the Russian market to the UK and German markets is insignificant. Diversification of international portfolios in the Russian market is recommended.

Keywords: volatility; correlation; BEKK-GARCH (1; 1) model; DCC-GARCH model; CCC-GARCH model; Russia; devel-oped markets (search for similar items in EconPapers)
JEL-codes: G15 G17 (search for similar items in EconPapers)
Date: 2020
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