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Global Financial Crises and Time-Varying Volatility Comovement in World Equity Markets

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  • Andrew S. Duncan
  • Alain Kabundi

Abstract

This paper studies volatility comovement in world equity markets between 1994 and 2008. Global volatility factors are extracted from a panel of monthly volatility proxies relating to 25 developed and 20 emerging stock markets. A dynamic factor model (FM) is estimated using two-year rolling-window regressions. The FM's time-varying variance shares of global factors map variations in volatility comovement over time and across countries. The results indicate that global volatility linkages are significantly stronger during financial crisis periods in Asia (1997-1998), Brazil (1999), Russia (1998) and the United States (2000, 2007-2008). Emerging markets are weakly synchronised with world volatility in comparison with developed markets. In particular, emerging market comovement is significantly lower than developed market comovement during the Asian and US sub-prime crises. This suggests a degree of decoupling of emerging markets from the global drivers of volatility during these periods.

Suggested Citation

  • Andrew S. Duncan & Alain Kabundi, 2014. "Global Financial Crises and Time-Varying Volatility Comovement in World Equity Markets," South African Journal of Economics, Economic Society of South Africa, vol. 82(4), pages 531-550, December.
    • Handle: RePEc:bla:sajeco:v:82:y:2014:i:4:p:531-550
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    File URL: http://hdl.handle.net/10.1111/saje.12033
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