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How wacky is the DAX? The changing structure of German stock market volatility


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  • Werner, Thomas
  • Stapf, Jelena
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    In this paper we investigate the volatility structure of the German stock market index DAX and its constituents. Using a recently developed test, we find a volatility break in 1997. Interestingly, not only is the volatility higher after 1997 but the volatility persistence also increased. That means that there is a greater likelihood of high volatility days being followed by further high volatility days. An immediate consequence is that the tails of the distribution of stock market returns become fatter or that the probability of extreme price movements becomes greater. The break in volatility is not only a phenomenon of the index itself; the returns of the underlying equities also show a volatility break. If the volatility is decomposed into market and firm-specific or idiosyncratic components, the idiosyncratic volatility is shown to have increased much more than the market volatility. This is probably connected to the declining correlations among individual stock returns and has implications for portfolio diversification. When analysing potential reasons for the break in volatility, we find that the increase in the volatility of the German stock market cannot be attributed to international spillovers alone. Domestic factors which may help to explain the break in volatility are the growing number of institutional investors and the increase in the volatility of longer-term interest rates. -- Dieses Arbeitspapier analysiert Veränderungen der Volatilität des Deutschen Aktienindex (DAX) und der in ihm enthaltenen Aktienwerte. Ein kürzlich entwickelter Test zeigt einen Bruch im Ausmaß der Schwankungen der Aktienrenditen im Jahr 1997 an. Seitdem nahm nicht nur die Volatilität der täglichen Aktienrenditen deutlich zu, sondern es stieg auch deren Persistenz an. Das heißt, auf Tage mit hohen Schwankungen folgen jetzt viel häufiger Tage mit ebenfalls hoher Volatilität. Die ebenso höhere Wahrscheinlichkeit extremer Preisschwankungen zeigt sich darin, dass die Verteilung der Aktienkurserträge deutlich mehr Masse in den Rändern aufweist. Interessanterweise läst sich der Bruch in der Volatilitä nicht nur im Index, sondern auch bei fast allen Einzelwerten etwa zum selben Zeitpunkt nachweisen. Eine Zerlegung der Volatilität in eine Marktkomponente und eine firmenspezifische oder idiosynkratische Komponente zeigt desweiteren, dass letztere viel stärker angestiegen ist als das systematische oder Marktrisiko. Im Zusammenhang damit stehen die gesunkenen Korrelationen zwischen den Einzelaktien; diese haben Auswirkungen auf die Risikodiversifikation eines Portfolios. Als mögliche Ursachen für den Anstieg der Volatilität können nicht allein Übertragungen von Schwankungen anderer internationaler Märkte, insbesondere des amerikanischen Marktes, gelten. Heimische Faktoren, die helfen können den Bruch in der Dynamik der Schwankungen der Aktienerträge zu erklären, sind die zunehmende Rolle institutioneller Investoren am Aktienmarkt und die steigende Volatilität von Langfristzinsen.

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    Bibliographic Info

    Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2003,18.

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    Date of creation: 2003
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    Handle: RePEc:zbw:bubdp1:4473

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    Keywords: market and idiosyncratic volatility; test on break in volatility dynamics; institutional ownership;

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    1. Ole E. Barndorff-Nielsen & Shephard, 2002. "Econometric analysis of realized volatility and its use in estimating stochastic volatility models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 64(2), pages 253-280.
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    11. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Cizek, P. & Haerdle, W. & Spokoiny, V., 2007. "Adaptive Pointwise Estimation in Time-Inhomogeneous Time-Series Models," Discussion Paper 2007-35, Tilburg University, Center for Economic Research.


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