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Dynamic stock market covariances in the Eurozone

Gregory Connor () and Anita Suurlaht

Journal of International Money and Finance, 2013, vol. 37, issue C, 353-370

Abstract: This paper examines the short-term dynamics, macroeconomic sensitivities, and longer-term trends in the variances and covariances of national equity market index daily returns for eleven countries in the Euro currency zone. We modify Colacito, Engle and Ghysel's Mixed Data Sampling Dynamic Conditional Correlation Garch model to include a new scalar measure for the degree of correlatedness in time-varying correlation matrices. We also explore the robustness of the findings with a less model-dependent realized covariance estimator. We find a secular trend toward higher correlation during our sample period, and significant linkages between macroeconomic and market-wide variables and dynamic correlation. One notable finding is that average correlation between these markets is lower when their average GDP growth rate is lower or when more of them have negative GDP growth.

Keywords: Dynamic conditional correlation; Multivariate GARCH; International stock market integration; European Monetary Union (search for similar items in EconPapers)
JEL-codes: C51 C58 G15 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:37:y:2013:i:c:p:353-370

DOI: 10.1016/j.jimonfin.2013.06.008

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