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Correlation Dynamics in European Equity Markets

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  • Colm Kearney

    (Trinity College, Dublin - School of Business Studies & Institute for International Integration Studies)

  • Valerio Poti

    (Dublin City University - Business School)

Abstract

We examine correlation dynamics using daily data from 1993 to 2002 on the 5 largest eurozone stock market indices. We also study, for comparison, the correlations of a sample of individual stocks. We employ both unconditional and conditional estimation methodologies,including estimation of the conditional correlations using the symmetric and asymmetric DCC-MVGARCH model, extended with the inclusion of a deterministic time trend. We confirm the presence of a structural break in market index correlations reported by previous researchers and, using an innovative likelihood-based search, we find that it occurred at the beginning the process of monetary integration in the Euro-zone. We find mixed evidence of asymmetric correlation reactions to news of the type modelled by conventional asymmetric DCC-MVGARCH specifications.

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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0507008.

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Length: 26 pages
Date of creation: 06 Jul 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0507008

Note: Type of Document - pdf; pages: 26. Forthcoming
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Web page: http://128.118.178.162

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Keywords: Correlation Dynamics; GARCH;

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