 Volatility and shock interactions and risk management implications: Evidence from the U.S. and frontier marketsGeoffrey Ngene, Jordin A. Post and Ann N. Mungai Emerging Markets Review, 2018, vol. 37, issue C, 181-198 Abstract: The study affords comprehensive evidence of shock and volatility interactions between stock markets of each of the twenty four frontier markets and the U.S. for the period 2006:01 to 2015:07. The results from the recent EDCC-GARCH model of Nakatani and Teräsvirta (2009), which permits for concurrent estimation of shock and volatility interactions as well as dynamic conditional correlations (DCC) across assets, shows unidirectional shock and volatility transmissions from the U.S. to the frontier markets. The conditional correlation between the U.S. and each frontier market is very low or negative, offering diversification benefits to U.S. investors. The DCC exhibits slow decay and is insignificantly impacted by previous period's shocks. The results are very intuitive for optimal portfolio allocations using the traditional capital-based as well as the risk-based allocations. The risk parity approach to portfolio management increases (reduces) allocations to lower (higher) risk assets to improve portfolio diversification while increasing the risk-adjusted returns. Keywords: Frontier markets; Shocks; Volatility; Interactions; EDCC model; The U.S (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:37:y:2018:i:c:p:181-198 DOI: 10.1016/j.ememar.2018.09.001 Access Statistics for this article Emerging Markets Review is currently edited by Jonathan A. Batten More articles in Emerging Markets Review from Elsevier |
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