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Grouping Stock Markets with Time-Varying Copula-GARCH Model

Author

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  • Anna CZAPKIEWICZ

    (Faculty of Management, AGH University of Science and Technology, Cracow, Poland)

  • Pawel MAJDOSZ

    (STATMET, s.c., Cracow, Poland)

Abstract

The aim of this work is to find the dynamics of interdependencies and similarities between European, American and Asian stock markets. The investigation covers daily returns of 36 market indices. In order to examine the dependencies between these data, the Markov regime switching copula model with two regimes is considered. For the dynamic clustering purposes, the time varying Spearman ratio obtained from the regime switching copula model is taken to construct the dissimilarity measure between any two markets. To demonstrate the dynamics of the changes, three sub-periods are considered: the period before the global financial crisis (from October 2002 to July 2007), the period of the crisis itself (from July 2007 to December 2008) and the post-crisis period (from January 2009 to April 2012). Taking dynamical relationships into account, all stock markets can be divided into four clusters: North and South America, Western Europe, Eastern Europe and Asia. However, in each of these main clusters similarities between financial markets vary with time.

Suggested Citation

  • Anna CZAPKIEWICZ & Pawel MAJDOSZ, 2014. "Grouping Stock Markets with Time-Varying Copula-GARCH Model," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(2), pages 144-159, March.
    • Handle: RePEc:fau:fauart:v:64:y:2014:i:2:p:144-159
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    References listed on IDEAS

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    Cited by:

    1. Czapkiewicz, Anna & Wójtowicz, Tomasz & Zaremba, Adam, 2023. "Idiosyncratic risk and cross-section of stock returns in emerging European markets," Economic Modelling, Elsevier, vol. 124(C).
    2. Anna Czapkiewicz & Pawel Jamer & Joanna Landmesser, 2018. "Effects of Macroeconomic Indicators on the Financial Markets Interrelations," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(3), pages 268-293, July.
    3. Tian, Qiang & Shang, Pengjian & Feng, Guochen, 2014. "Financial time series analysis based on information categorization method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 416(C), pages 183-191.

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    More about this item

    Keywords

    regime switching copula model; Spearman ratio; clustering stock indices;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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