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Interest Rate Volatility and Contagion in Emerging Markets: Evidence from the 1990s

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  • Sebastian Edwards
  • Raul Susmel

Abstract

In this paper we use high frequency interest rate data for a group of Latin American countries to analyze the behavior of volatility through time. We are particularly interested in understanding whether periods of high volatility spillover across countries. Our analysis relies both on univariate and bivariate switching volatility models. Our results indicate that high-volatility episodes are, in general, short-lived, lasting from two to seven weeks. We find some weak evidence of volatility co-movements across countries. Overall, our results are not overly supportive of contagion' stories.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7813.

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Date of creation: Jul 2000
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Publication status: published as Edwards, Sebastian and Raul Susmel. "Volatility Dependence And Contagion In Emerging Equity Markets," Journal of Development Economics, 2001, v66(2,Dec), 505-532.
Handle: RePEc:nbr:nberwo:7813

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  1. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, American Finance Association, vol. 57(5), pages 2223-2261, October.
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  3. Hamilton, James D., 1996. "Specification testing in Markov-switching time-series models," Journal of Econometrics, Elsevier, Elsevier, vol. 70(1), pages 127-157, January.
  4. Hansen, B.E., 1991. "The Likelihood Test Under Non-Standard Conditions: Testing the Markov Trend Model of GNP," RCER Working Papers 279, University of Rochester - Center for Economic Research (RCER).
  5. Lamoureux, Christopher G & Lastrapes, William D, 1990. "Persistence in Variance, Structural Change, and the GARCH Model," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 8(2), pages 225-34, April.
  6. Ball, Clifford A. & Torous, Walter N., 1995. "Regime Shifts in Short Term Riskless Interest Rates," University of California at Los Angeles, Anderson Graduate School of Management, Anderson Graduate School of Management, UCLA qt5hs021jf, Anderson Graduate School of Management, UCLA.
  7. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, American Finance Association, vol. 48(5), pages 1749-78, December.
  8. Robert F. Engle & Takatoshi Ito & Wen-Ling Lin, 1988. "Meteor Showers or Heat Waves? Heteroskedastic Intra-Daily Volatility in the Foreign Exchange Market," NBER Working Papers 2609, National Bureau of Economic Research, Inc.
  9. Goodwin, Thomas H, 1993. "Business-Cycle Analysis with a Markov-Switching Model," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(3), pages 331-39, July.
  10. Hansen, Bruce E, 1996. "Erratum: The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(2), pages 195-98, March-Apr.
  11. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
  12. 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, Society for Financial Studies, vol. 3(2), pages 281-307.
  13. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 64(1-2), pages 307-333.
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Cited by:
  1. Tuysuz, Sukriye, 2007. "The asymmetric impact of macroeconomic announcements on U.S. Government bond rate level and volatility," MPRA Paper 5381, University Library of Munich, Germany.
  2. Sandra Lizarazo, 2009. "Default Risk and Risk Averse International Investors," Working Papers, Centro de Investigacion Economica, ITAM 0907, Centro de Investigacion Economica, ITAM.
  3. Cifarelli, Giulio & Paladino, Giovanna, 2006. "Volatility co-movements between emerging sovereign bonds: Is there segmentation between geographical areas?," Global Finance Journal, Elsevier, vol. 16(3), pages 245-263, March.
  4. Caprio, Gerard & Honohan, Patrick, 2001. "Finance for Growth: Policy Choices in a Volatile World," MPRA Paper 9929, University Library of Munich, Germany.
  5. Radovan Vadovic, 2009. "Early, Late, and Multiple Bidding in Internet Auctions," Working Papers, Centro de Investigacion Economica, ITAM 0904, Centro de Investigacion Economica, ITAM.
  6. Vivek Arora & Martin Cerisola, 2001. "How Does U.S. Monetary Policy Influence Sovereign Spreads in Emerging Markets?," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 3.

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