 What drives international equity correlations? Volatility or market direction?Khaled Amira, Abderrahim Taamouti and Georges Tsafack Journal of International Money and Finance, 2011, vol. 30, issue 6, 1234-1263 Abstract: We consider impulse response functions to study the impact of both return and volatility on the correlation between international equity markets. Using data on the US (as the reference country), Canada, the UK and France equity indices, empirical evidence shows that without taking into account the effect of return, there is an (asymmetric) effect of volatility on correlation. The volatility seems to have an impact on correlation especially during downturn periods. However, once we introduce the effect of return, the impact of volatility on correlation disappears. These observations suggest that, the relation between volatility and correlation is an association rather than a causality. The strong increase in the correlation is driven by the past of the return and the market direction rather than the volatility. Keywords: International; equity; markets; Asymmetric; volatility; Asymmetric; correlation; Estimation; error; Vector; autoregressive; (VAR); DCC-GARCH; Generalized; impulse; response; function; Granger; causality (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:jimfin:v:30:y:2011:i:6:p:1234-1263 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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