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Shock transmission among the European Stock markets - Conferinta CRESTERE ECONOMICA SI SUSTENABILITATE SOCIALA. PROVOCARI SI PERSPECTIVE EUROPENE>

Radu Lupu ()

Institute for Economic Forecasting Conference Proceedings from Institute for Economic Forecasting

Abstract: The analysis of the comovements of stock market returns was approached with many modeling techniques ranging from the simple and GARCH style dynamic conditional correlation to multivariate GARCH and studies of the bivariate distribution. The quest for the analysis of the now standardized concept of international contagion made room for the employment of all these techniques. Our paper focuses on the analysis of the comovements in the volatilities of the returns of stock market indices from the most important developed and emerging European countries, using different forms of computation for different frequencies, starting from intra-day 5-minute returns to weekly returns (data used from Bloomberg). After a brief characterization of the distribution of returns and a reconfirmation of the stylized facts for the European emerging markets we focus on the clustering effect of volatilities, in the attempt to identify the moments when a new cluster is formed, i.e. when the volatilities change their size (from small to big or from big to small). The analysis of these events for the respective countries intends to reveal the mechanism of international information transmission. The paper also fits a jump-diffusion process, along the lines of Maheu and McCurdy (2007) adjusted for the series of volatilities, where the Poisson process characterizes the time until a change in the volatility cluster occurs.

Keywords: comovement; returns’ volatility; European emerging stock markets (search for similar items in EconPapers)
JEL-codes: C39 G15 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2011-10
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