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Modelling return and conditional volatility exposures in global stock markets

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Author Info

  • Charlie Cai
  • Robert Faff

    ()

  • David Hillier
  • Michael McKenzie

Abstract

This article empirically investigates the exposure of country-level conditional stock return volatilities to conditional global stock return volatility. It provides evidence that conditional stock market return volatilities have a contemporaneous association with global return volatilities. While all the countries included in the study exhibited a significant and positive relationship to global volatility, emerging market volatility exposures were considerably higher than developed market exposures. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11156-006-8793-4
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Bibliographic Info

Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

Volume (Year): 27 (2006)
Issue (Month): 2 (September)
Pages: 125-142

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Handle: RePEc:kap:rqfnac:v:27:y:2006:i:2:p:125-142

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Web page: http://springerlink.metapress.com/link.asp?id=102990

Related research

Keywords: Conditional volatility exposures; Emerging market risk; GARCH modelling;

References

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  1. Ng, Victor & Engle, Robert F. & Rothschild, Michael, 1992. "A multi-dynamic-factor model for stock returns," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 245-266.
  2. Sandeep Patel & Asani Sarkar, 1998. "Stock market crises in developed and emerging markets," Research Paper 9809, Federal Reserve Bank of New York.
  3. Engle, Robert F. & Ng, Victor K. & Rothschild, Michael, 1990. "Asset pricing with a factor-arch covariance structure : Empirical estimates for treasury bills," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 213-237.
  4. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," NBER Working Papers 6312, National Bureau of Economic Research, Inc.
  5. Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
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  7. 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.
  8. Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, vol. 31(4), pages 1085-1100, September.
  9. Engle, Robert F & Susmel, Raul, 1993. "Common Volatility in International Equity Markets," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 167-76, April.
  10. Haugen, Robert A & Talmor, Eli & Torous, Walter N, 1991. " The Effect of Volatility Changes on the Level of Stock Prices and Subsequent Expected Returns," Journal of Finance, American Finance Association, vol. 46(3), pages 985-1007, July.
  11. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
  12. Mervyn A. King & Sushil Wadhwani, 1989. "Transmission of Volatility Between Stock Markets," NBER Working Papers 2910, National Bureau of Economic Research, Inc.
  13. Daniel Chi-Hsiou Hung & Mark Shackleton & Xinzhong Xu, 2004. "CAPM, Higher Co-moment and Factor Models of UK Stock Returns," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1-2), pages 87-112.
  14. Robert F. Dittmar, 2002. "Nonlinear Pricing Kernels, Kurtosis Preference, and Evidence from the Cross Section of Equity Returns," Journal of Finance, American Finance Association, vol. 57(1), pages 369-403, 02.
  15. Bollerslev, Tim & Engle, Robert F, 1993. "Common Persistence in Conditional Variances," Econometrica, Econometric Society, vol. 61(1), pages 167-86, January.
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