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Switching Volatility in Private International Equity Markets

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  • Susmel, Raul
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    Abstract

    This paper analyzes the behavior of time-varying volatility when structural changes are allowed in international stock markets. A model developed by Hamilton and Susmel (1994), the switching autoregressive conditional heteroskedastic (SWARCH) model, which is a more general specification than the popular ARCH model, is used. An exponential SWARCH model is fitted to eight series of weekly returns from international stock markets. Evidence is found for switching volatility for the US, Canada, the UK, and Japan. Under the SWARCH model, it is found that ARCH and asymmetric effects are reduced when a switching regime structure is allowed. The switching model is used to date volatility states in international stock markets. These states are compared and it is concluded that domestic volatility states tend to be independent of foreign volatility states, with the exception of Japan and the UK, and the US and Canada. For these two pairs of series, evidence is found for common volatility states. Copyright @ 2000 by John Wiley & Sons, Ltd. All rights reserved.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 5 (2000)
    Issue (Month): 4 (October)
    Pages: 265-83

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    Handle: RePEc:ijf:ijfiec:v:5:y:2000:i:4:p:265-83

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    Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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    Cited by:
    1. Roberta Colavecchio & Michael Funke, 2009. "Volatility Dependence across Asia-Pacific Onshore and Offshore Currency Forwards Markets," Working Papers 112009, Hong Kong Institute for Monetary Research.
    2. Arago-Manzana, Vicent & Fernandez-Izquierdo, Maria Angeles, 2007. "Influence of structural changes in transmission of information between stock markets: A European empirical study," Journal of Multinational Financial Management, Elsevier, vol. 17(2), pages 112-124, April.
    3. Ritab Al-Khouri & Abdulkhader Abdallah, 2012. "Market liberalization and volatility of returns in emerging markets: The case of Qatar Exchange (QSC)," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 5(2), pages 106-115, June.
    4. Blazej Mazur & Mateusz Pipien, 2012. "On the empirical importance of periodicity in the volatility of financial time series," National Bank of Poland Working Papers 124, National Bank of Poland, Economic Institute.
    5. Brunetti, Celso & Scotti, Chiara & Mariano, Roberto S. & Tan, Augustine H.H., 2008. "Markov switching GARCH models of currency turmoil in Southeast Asia," Emerging Markets Review, Elsevier, vol. 9(2), pages 104-128, June.
    6. Christiansen, Charlotte, 2005. "Level-ARCH Short Rate Models with Regime Switching: Bivariate Modeling of US and European Short Rates," Finance Research Group Working Papers F-2005-03, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    7. S. Bordignon & D. Raggi, 2010. "Long memory and nonlinearities in realized volatility: a Markov switching approach," Working Papers 694, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Błażej Mazur & Mateusz Pipień, 2012. "On the Empirical Importance of Periodicity in the Volatility of Financial Returns - Time Varying GARCH as a Second Order APC(2) Process," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 4(2), pages 95-116, June.
    9. Jarl G. Kallberg & Paolo Pasquariello, 2005. "An Examination of the Asian Crisis: Regime Shifts in Currency and Equity Markets," The Journal of Business, University of Chicago Press, vol. 78(1), pages 169-212, January.
    10. Charfeddine, Lanouar & Ajmi, Ahdi Noomen, 2013. "The Tunisian stock market index volatility: Long memory vs. switching regime," Emerging Markets Review, Elsevier, vol. 16(C), pages 170-182.
    11. George Karathanassis & Vasilios Sogiakas, 2010. "Spill over effects of futures contracts initiation on the cash market: a regime shift approach," Review of Quantitative Finance and Accounting, Springer, vol. 34(1), pages 95-143, January.

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