Is there an identity within international stock market volatilities?
AbstractPrevious studies have investigated the comovements of international equity returns by using mean correlations, cointegration, common factor analysis, and other approaches. This paper investigates the evolution of the affinity among major euro and non-euro area stock markets in the period 1966-2006 by using distance-based methods for clustering analysis of time series. A periodogram-based metric for mean and squared returns is used to compute distances between the series. This method solves the shortcoming of unequal sample sizes found for different countries. Then, by using dendrogram and multidimensional scaling techniques based on the computed distances, we display clusters for the series of returns and volatilities. The data were divided into two sample periods: previous and subsequent to the introduction of the euro as an electronic currency. For market returns, euro-area countries do not seem to come closer after the introduction of the euro. There is some identity that is maintained after 1998. For squared returns, we found a clear change with the introduction of the euro. Up to 1998, there is a weak linkage among euro area countries. After 1998, the euro area stock markets volatilities have become considerably more homogenous. For reference, we explored also the correlations among the series. We found that some stock markets within the European Monetary Union are strongly correlated in returns and in squared returns, and that some euro and non-euro area markets are not correlated in returns, but are weakly correlated in squared returns.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2069.
Date of creation: 2007
Date of revision:
Cluster analysis; Euro area; International stock markets; Returns and squared returns; Periodogram; Volatility;
Find related papers by JEL classification:
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-17 (All new papers)
- NEP-EEC-2007-03-17 (European Economics)
- NEP-IFN-2007-03-17 (International Finance)
- NEP-RMG-2007-03-17 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Caiado, Jorge & Crato, Nuno & Peña, Daniel, 2007. "Comparison of time series with unequal length," MPRA Paper 6605, University Library of Munich, Germany.
- Rita D'Ecclesia & Mauro Costantini, 2006. "Comovements and correlations in international stock markets," The European Journal of Finance, Taylor & Francis Journals, vol. 12(6-7), pages 567-582.
- Bessler, David A. & Yang, Jian, 2003. "The structure of interdependence in international stock markets," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 261-287, April.
- Tak-Kee Hui, 2005. "Portfolio diversification: a factor analysis approach," Applied Financial Economics, Taylor & Francis Journals, vol. 15(12), pages 821-834.
- Karolyi, G Andrew & Stulz, Rene M, 1996.
" Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements,"
Journal of Finance,
American Finance Association, vol. 51(3), pages 951-86, July.
- G. Andrew Karoly & Rene Stulz, . "Why do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements," Research in Financial Economics 9603, Ohio State University.
- Lin, Wen-Ling & Engle, Robert F & Ito, Takatoshi, 1994. "Do Bulls and Bears Move across Borders? International Transmission of Stock Returns and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(3), pages 507-38.
- Voronkova, Svitlana, 2004. "Equity market integration in Central European emerging markets: A cointegration analysis with shifting regimes," International Review of Financial Analysis, Elsevier, vol. 13(5), pages 633-647.
- Ramchand, Latha & Susmel, Raul, 1998. "Volatility and cross correlation across major stock markets," Journal of Empirical Finance, Elsevier, vol. 5(4), pages 397-416, October.
- Engle, Robert F & Susmel, Raul, 1993. "Common Volatility in International Equity Markets," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 167-76, April.
- Ball, Clifford A. & Torous, Walter N., 2000. "Stochastic Correlation Across International Stock Markets," University of California at Los Angeles, Anderson Graduate School of Management qt6vn9q79w, Anderson Graduate School of Management, UCLA.
- François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
- A. Tahai & Robert Rutledge & Khondkar Karim, 2004. "An examination of financial integration for the group of seven (G7) industrialized countries using an I( ) cointegration model," Applied Financial Economics, Taylor & Francis Journals, vol. 14(5), pages 327-335.
- Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
- Ball, Clifford A. & Torous, Walter N., 2000. "Stochastic correlation across international stock markets," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 373-388, November.
- Caiado, Jorge & Crato, Nuno & Pena, Daniel, 2006. "A periodogram-based metric for time series classification," Computational Statistics & Data Analysis, Elsevier, vol. 50(10), pages 2668-2684, June.
- Theodore Syriopoulos, 2004. "International portfolio diversification to Central European stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 14(17), pages 1253-1268.
- Ammer, John & Mei, Jianping, 1996. " Measuring International Economic Linkages with Stock Market Data," Journal of Finance, American Finance Association, vol. 51(5), pages 1743-63, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.