IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v33y2009i11p2026-2035.html
   My bibliography  Save this article

Explaining international stock correlations with CPI fluctuations and market volatility

Author

Listed:
  • Cai, Yijie
  • Chou, Ray Yeutien
  • Li, Dan

Abstract

This paper investigates the dynamic correlations among six international stock market indices and their relationship to inflation fluctuation and market volatility. The current research uses a newly developed time series model, the Double Smooth Transition Conditional Correlation with Conditional Auto Regressive Range (DSTCC-CARR) model. Findings reveal that international stock correlations are significantly time-varying and the evolution among them is related to cyclical fluctuations of inflation rates and stock volatility. The higher/lower correlations emerge between countries when both countries experience a contractionary/expansionary phase or higher/lower volatilities.

Suggested Citation

  • Cai, Yijie & Chou, Ray Yeutien & Li, Dan, 2009. "Explaining international stock correlations with CPI fluctuations and market volatility," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2026-2035, November.
    • Handle: RePEc:eee:jbfina:v:33:y:2009:i:11:p:2026-2035
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(09)00122-8
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
    2. Kizys, Renatas & Pierdzioch, Christian, 2006. "Business-cycle fluctuations and international equity correlations," Global Finance Journal, Elsevier, vol. 17(2), pages 252-270, December.
    3. Kristin J. Forbes & Menzie D. Chinn, 2004. "A Decomposition of Global Linkages in Financial Markets Over Time," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 705-722, August.
    4. Ammer, John & Mei, Jianping, 1996. " Measuring International Economic Linkages with Stock Market Data," Journal of Finance, American Finance Association, vol. 51(5), pages 1743-1763, December.
    5. Ray Chou & Chun-Chou Wu & Nathan Liu, 2009. "Forecasting time-varying covariance with a range-based dynamic conditional correlation model," Review of Quantitative Finance and Accounting, Springer, vol. 33(4), pages 327-345, November.
    6. François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, April.
    7. Annastiina Silvennoinen & Timo Teräsvirta, 2005. "Multivariate Autoregressive Conditional Heteroskedasticity with Smooth Transitions in Conditional Correlations," Research Paper Series 168, Quantitative Finance Research Centre, University of Technology, Sydney.
    8. Dumas, Bernard & Harvey, Campbell R. & Ruiz, Pierre, 2003. "Are correlations of stock returns justified by subsequent changes in national outputs?," Journal of International Money and Finance, Elsevier, vol. 22(6), pages 777-811, November.
    9. Suk-Joong Kim & Fari Moshirian & Eliza Wu, 2018. "Evolution of International Stock and Bond Market Integration: Influence of the European Monetary Union," World Scientific Book Chapters,in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 12, pages 391-428 World Scientific Publishing Co. Pte. Ltd..
    10. Ferreira, Miguel A. & Gama, Paulo M., 2007. "Does sovereign debt ratings news spill over to international stock markets?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3162-3182, October.
    11. Chou, Ray Yeutien, 2005. "Forecasting Financial Volatilities with Extreme Values: The Conditional Autoregressive Range (CARR) Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 561-582, June.
    12. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-933, July.
    13. Cevdet Aydemir, A., 2008. "Risk sharing and counter-cyclical variation in market correlations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(10), pages 3084-3112, October.
    14. Yang, Jian & Zhou, Yinggang & Wang, Zijun, 2009. "The stock-bond correlation and macroeconomic conditions: One and a half centuries of evidence," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 670-680, April.
    15. Panchenko, Valentyn & Wu, Eliza, 2009. "Time-varying market integration and stock and bond return concordance in emerging markets," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1014-1021, June.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:33:y:2009:i:11:p:2026-2035. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jbf .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.