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Volatility : As a Driving Factor of Stock Market Co-movement

Author

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  • Ali Gencay Ozbekler

Abstract

There is a strand of finance literature showing that correlation between markets increases during times of high volatility. This paper revisits this finding by comparing contribution of relative volatility to correlations between S&P 500 Index returns and global equity markets' returns before and after the Global Financial Crisis. Our results show that degree and direction of contribution of volatility to correlation has changed in some countries after the crisis. It has implications in the context of international portfolio diversification to reduce portfolio risks. In addition, introducing an extended version of contagion analysis helps to identify contagion and interdependence effects in more detail.

Suggested Citation

  • Ali Gencay Ozbekler, 2017. "Volatility : As a Driving Factor of Stock Market Co-movement," Working Papers 1711, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1711
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2017/17-11
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    More about this item

    Keywords

    Stock markets; Market volatility; Co-movement; Spillover; Contagion; Interdependence; Portfolio risk;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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