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Market volatility across countries – evidence from international markets

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  • Sabur Mollah
  • Asma Mobarek
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    Abstract

    Purpose – The purpose of this paper is to investigate the time-varying risk return relationship and the persistence of shocks to volatility within GARCH framework both in developed and emerging markets. Design/methodology/approach – This paper uses nonlinear ARCH and GARCH-family models for testing the volatility both in developed and emerging markets. Findings – The findings of the paper suggest that there is a long-term persistence shock in emerging markets compared to developed markets. Research limitations/implications – The data set used for the developed and emerging markets is not consistent in terms of sample period. However, this paper explores the venues for further research on the global diversification. Practical implications – The implication of volatility measurement is vital in determining the cost of capital for investment and portfolio management, option pricing and for market regulations. Originality/value – The unique features of the paper include large sample size with updated data set that reveals the nature of world economy and empirical evidence on volatility testing that reports the risk return characteristics of both developed and emerging markets.

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=1086-7376&volume=26&issue=4&articleid=1816903&show=abstract
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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

    Volume (Year): 26 (2009)
    Issue (Month): 4 (October)
    Pages: 257-274

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    Handle: RePEc:eme:sefpps:v:26:y:2009:i:4:p:257-274

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    Web page: http://www.emeraldinsight.com

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    Related research

    Keywords: Financial markets; Financial modelling; Market forces;

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    References

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    1. Baillie, Richard T. & DeGennaro, Ramon P., 1990. "Stock Returns and Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(02), pages 203-214, June.
    2. Geert Bekaert & Campbell R. Harvey, 1997. "Emerging Equity Market Volatility," NBER Working Papers 5307, National Bureau of Economic Research, Inc.
    3. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
    4. Bekaert, Geert, 1995. "Market Integration and Investment Barriers in Emerging Equity Markets," World Bank Economic Review, World Bank Group, vol. 9(1), pages 75-107, January.
    5. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September.
    6. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    7. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
    8. Aggarwal, Reena & Inclan, Carla & Leal, Ricardo, 1999. "Volatility in Emerging Stock Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 33-55, March.
    9. Geert Bekaert & Guojun Wu, 1997. "Asymmetric Volatility and Risk in Equity Markets," NBER Working Papers 6022, National Bureau of Economic Research, Inc.
    10. Cohen, Kalman J, et al, 1976. "The Determinants of Common Stock Returns Volatility: An International Comparison," Journal of Finance, American Finance Association, vol. 31(2), pages 733-40, May.
    11. Chou, Ray Yeutien, 1988. "Volatility Persistence and Stock Valuations: Some Empirical Evidence Using Garch," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 279-94, October-D.
    12. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
    13. Wu, Guojun, 2001. "The Determinants of Asymmetric Volatility," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 837-59.
    14. Chaker Aloui, 2003. "Long-Range Dependence in Daily Volatility on Tunisian Stock Market," Working Papers 0340, Economic Research Forum, revised Dec 2003.
    15. Jun Yu, 2002. "Forecasting volatility in the New Zealand stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 12(3), pages 193-202.
    16. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
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