MODELING DYNAMIC CORRELATIONS AND SPILLOVER EFFECTS OF COUNTRY RISK: EVIDENCE FROM RUSSIA AND KAZAKHSTAN

Jianping Li, Xiaolei Sun (), Wan He (), Ling Tang () and Weixuan Xu ()
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Xiaolei Sun: Institute of Policy & Management Chinese Academy of Sciences, Beijing 100190, P. R. China;
Wan He: School of Economics, Renmin University of China, Beijing, 100872, P. R. China
Ling Tang: Institute of Policy & Management Chinese Academy of Sciences, Beijing 100190, P. R. China;
Weixuan Xu: Institute of Policy & Management Chinese Academy of Sciences, Beijing 100190, P. R. China

International Journal of Information Technology & Decision Making (IJITDM), 2009, vol. 08, issue 04, 803-818

Abstract: Oil economies in the Former Soviet Union (FSU) region, with geographical proximity to each other, are usually impacted by some common risk factors, which make their country risks closely correlated. This paper focuses on correlation between country risks and investigates the spillovers of country risk returns (CRR). Taking Russia and Kazakhstan for example, firstly, this paper identifies the structural breaks in CRR series, using iterated cumulative sums of squares (ICSS) algorithm. Secondly, on the assumption that there may be similarity in structural breaks of CRR series of the two countries, Vector Autoregression (VAR) process and Granger causality test are used to identify whether there are mean spillovers of CRR series. Finally, the volatility spillovers are captured by using multivariate conditional volatility models in the framework of the BEKK models. Empirical results show that (1) there are significant unidirectional mean spillovers from Russia to Kazakhstan; (2) there are asymmetric bidirectional volatility spillovers between Russia and Kazakhstan; and volatility spillover effects from Russia to Kazakhstan are stronger.

Keywords: Country risk; oil economy; dynamic correlation; structural break; spillovers (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (9)

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DOI: 10.1142/S0219622009003570

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