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Stock Return Volatility on Scandinavian Stock Markets and the Banking Industry

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Author Info
Hyytinen, Ari () (Bank of Finland)
Abstract

This paper investigates the evolution of the (conditional) volatility of returns on three Scandinavian markets (Finland, Norway and Sweden) over the turbulent period of the past decade, namely the overlapping periods of financial liberalisation, drastically changing macroeconomic conditions and banking crisis. We find that even over this relatively turbulent period volatility is in most cases successfully captured by past volatility and shocks to past volatility, ie by a (symmetric) GARCH process. In each country banking crisis has induced regime shifts in (unconditional) volatility. We also find evidence for cross-country volatility spillovers during the banking crisis episodes. The estimated volatility patterns suggest that even though the volatility of returns was of very high magnitude during the years of banking crisis, developments within the banking industry were not reflected in market uncertainty until all the damage had been done and the severe problems afflicting banks began to be realised in full.

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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 19/1999.

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Length: 26 pages
Date of creation: 20 Dec 1999
Date of revision:
Handle: RePEc:hhs:bofrdp:1999_019

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: GARCH; conditional volatility; banking crisis; volatility spillovers;

References listed on IDEAS
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    Other versions:
  4. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-78, December. [Downloadable!] (restricted)
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  5. Kim, Dongcheol & Kon, Stanley J, 1994. "Alternative Models for the Conditional Heteroscedasticity of Stock Returns," Journal of Business, University of Chicago Press, vol. 67(4), pages 563-98, October. [Downloadable!] (restricted)
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  11. E Philip Davis, 1999. "Financial data needs for macroprudential surveillance - What are the key indicators of risks to domestic financial stability?," Lectures, Centre for Central Banking Studies, Bank of England, number 2. [Downloadable!]
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  17. Koutmos, Gregory, 1998. "Asymmetries in the Conditional Mean and the Conditional Variance: Evidence From Nine Stock Markets," Journal of Economics and Business, Elsevier, vol. 50(3), pages 277-290, May. [Downloadable!] (restricted)
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    Other versions:
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