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Should Stock Market Indexes Time Varying Correlations Be Taken Into Account? A Conditional Variance Multivariate Approach

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Author Info

  • Ryan SULEIMANN

    (ECOLE NORMALE SUPERIEURE DE CACHAN)

Abstract

The episodes of stock market crises in Europe and the U.S.A.since the year 2000,and the fragility of the international stock markets,have sparked the interest of researchers in understanding and in modeling the markets’ rising volatilities in order to prevent against crises.Portfolio managers typically rely on estimates of correlations between returns on the financial instruments in the portfolio and on the volatility of those returns.This task is relatively simple if the correlations and volatilities do not change over time.But in reality both volatility and stock market indexes’ correlations do change over time. In this paper we examine the major stock market indexes’ rising volatilities, and we show that time varying correlations should be taken into account when modeling those indexes.We find that all of the indexes that we examine exhibit relatively time varying correlations with the other indexes and we find a strong GARCH effect in all of the examined series.

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Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 0307004.

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Date of creation: 17 Jul 2003
Date of revision: 18 Jul 2003
Handle: RePEc:wpa:wuwpem:0307004

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Web page: http://128.118.178.162

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Keywords: Conditional Variance; Time Varying Correlations; Volatility; Conta- gion; VAR.;

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References

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Cited by:
  1. Kuan-Min Wang, 2013. "Did Vietnam stock market avoid the “contagion risk” from China and the U.S.? The contagion effect test with dynamic correlation coefficients," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(4), pages 2143-2161, June.
  2. Kuan-Min Wang & Hung-Cheng Lai, 2013. "Which Global Stock Indices Trigger Stronger Contagion Risk in the Vietnamese Stock Market? Evidence Using a Bivariate Analysis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(4), pages 473-497, June.

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