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Explaining international stock correlations with CPI fluctuations and market volatility

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Listed author(s):
  • 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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(09)00122-8
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 11 (November)
Pages: 2026-2035

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Handle: RePEc:eee:jbfina:v:33:y:2009:i:11:p:2026-2035
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

Keywords: International stock markets CPI rates Global volatility Smooth transition CARR;

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  1. Kizys, Renatas & Pierdzioch, Christian, 2006. "Business-cycle fluctuations and international equity correlations," Global Finance Journal, Elsevier, vol. 17(2), pages 252-270, December.
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