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Integration of Stock Returns and Volatility of Emerging Equity Markets

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  • Rakesh Kumar

Abstract

The efforts are made in this study to examine the integration of a set of nine emerging equity markets under risk and uncertainty for a period from January 2000 to December 2014. The research methodology applied in the study includes application of Ljung–Box (L–B) test to examine the cross-correlation in stock returns, GARCH(1,1)-in-mean model for the estimation of volatility, and further L–B as a diagnostic testing of fitted model, and finally correlations to examine the integration of these markets in terms of stock returns and volatility. The L–B statistics suggests the presence of autocorrelation, which signifies volatility clustering in stock returns of all stock markets in questions. The findings report a significant integration between expected and unexpected volatilities between all the stock markets. The so obtained results bring out the important element of investment strategy. Investors across the markets respond in the same line with the emergence of global expected and unexpected economic and non-economic shocks and they will not be able to make extra returns by diversifying their funds in the long run.

Suggested Citation

  • Rakesh Kumar, 2016. "Integration of Stock Returns and Volatility of Emerging Equity Markets," Review of Market Integration, India Development Foundation, vol. 8(1-2), pages 79-102, April.
    • Handle: RePEc:sae:revmar:v:8:y:2016:i:1-2:p:79-102
    DOI: 10.1177/0974929216687884
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    References listed on IDEAS

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    More about this item

    Keywords

    Expected volatility; unexpected volatility; Emerging stock markets; Integration; GARCH;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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