Modelling the Time-Varying Correlations Between National Stock Market Returns

V. Ragunathan and H. Mitchell

Working Papers from Melbourne - Centre in Finance

Abstract: The analysis of correlations forms the basis of portfolio diversification and the lower the correlation between two assets, the greater the potential benefit to be obtained by diversification. In the international context , this typically involves the analyses of the correlation between the returns of national stock market indices. Erb, Harvey and Viskanta (1994) and Longin and Solnik (1995) have shown that these correlations tend to vary over the time according to the phases of business cycles. We extend this analysis by modelling time-varying correlations for the Morgan Stanley Capital International (MSCI) country indices using the Diagonal Vech parametrisation of the multivariate Generalised Autoregressive Conditional Heteroskedasticity (GARCH) model.

Keywords: FINANCIAL MARKET; PRICES (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Pages: 24 pages
Date: 1997
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:fth:melrfi:97-7

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