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Volatility Dependence and Contagion in Emerging Equity Markets

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  • Sebastian Edwards
  • Raul Susmel

Abstract

In this paper we use weekly stock market 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 are correlated across countries. The analysis uses both on univariate and bivariate switching volatility models. Our results do not rely on the correlation coefficients, but on the co-dependence of volatility regimes. The results indicate that high-volatility episodes are, in general, short-lived, lasting from two to twelve weeks. We find strong evidence of volatility co-movements across countries, especially among the Mercosur countries.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8506.

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Date of creation: Oct 2001
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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:8506

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  9. 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.
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  14. Paul Bennett & Jeanette Kelleher, 1988. "The international transmission of stock prices disruption in October 1987," Quarterly Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Sum, pages 17-33.
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