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Modelling Australian Stock Market Volatility: A Multivariate GARCH Approach

Abbas Valadkhani, Martin O'Brien () and Indika Karunanayake
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Martin O'Brien: University of Wollongong,
Indika Karunanayake: University of Wollongong,

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: This paper uses a multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) model to provide an insight into the nature of interaction between stock market returns of four countries, namely, Australia, Singapore, the UK, and the US. Using weekly data spanning from January 1992 to December 2008 the results indicate that all markets (particularly Australia and Singapore) display significant positive mean-spillovers from the US stock market returns but not vice versa. We also found strong evidence for both own and cross ARCH and GARCH effects among all four markets, indicating the existence of significant volatility and cross volatility spillovers across all four markets. Given a high degree of common time-varying co-volatility among these four countries, investors will be highly unlikely to benefit a reduction of risk if they diversify their financial portfolio with stocks from these four countries only

Keywords: Multivariate GARCH; Stock returns; Volatility, Australia (search for similar items in EconPapers)
JEL-codes: C32 G11 G15 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2009
New Economics Papers: this item is included in nep-fmk and nep-sea
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Citations: View citations in EconPapers (3)

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