Idiosyncratic Risk, Market Risk and Correlation Dynamics in European Equity Markets
AbstractWe examine total, market and idiosyncratic risk and correlation dynamics using daily data from 1993 to 2001 on the 6 largest euro-zone stock market indices and 42 firms from the Dow Jones Eurostoxx50 index. We also estimate conditional correlations using the asymmetric DCC-MVGARCH model. Comparing our results with those of Campbell, Lettau, Malkiel and Xu (2001), stock correlations are higher and have declined less in the euro-zone than in the United States over the 1990s, implying a lower benefit from diversification strategies. By contrast,correlations amongst market indices have risen, with a structural break related to the process of financial integration in the euro-zone.
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Bibliographic InfoPaper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp015.
Date of creation: 01 Jan 2004
Date of revision:
WTO; agricultural protection; trade liberalization; poverty alleviation;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-09 (All new papers)
- NEP-FIN-2004-05-09 (Finance)
- NEP-FMK-2004-05-09 (Financial Markets)
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