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Financial vs. Non-financial Stocks: Time-varying Correlations and Risks

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  • Flavin, Thomas J.
  • Sygelaki, Eirini

Abstract

We analyze the time-varying co-movements of both financial and non-financial stock returns across countries to analyze the conditional correlation exhibited by cross-country pairs during the recent financial crisis. Using an asymmetric bivariate GARCH model, the analysis is conducted for a number of developed and developing countries. Given the origins of this current crisis, we expect increased correlation between financial sectors. However, recent correlations are not excessively large when compared to those earlier in this decade. Principal components analysis reveals one common driver of these pairwise correlations which may be related to U.S. returns and market liquidity.

Suggested Citation

  • Flavin, Thomas J. & Sygelaki, Eirini, 2009. "Financial vs. Non-financial Stocks: Time-varying Correlations and Risks," The Journal of Economic Asymmetries, Elsevier, vol. 6(3), pages 71-92.
    • Handle: RePEc:eee:joecas:v:6:y:2009:i:3:p:71-92
    DOI: 10.1016/S1703-4949(16)30052-4
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    References listed on IDEAS

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    Cited by:

    1. Urom, Christian & Anochiwa, Lasbrey & Yuni, Denis & Idume, Gabriel, 2019. "Asymmetric linkages among precious metals, global equity and bond yields: The role of volatility and business cycle factors," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    2. Belcaid, Karim & El Ghini, Ahmed, 2019. "U.S., European, Chinese economic policy uncertainty and Moroccan stock market volatility," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).

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    More about this item

    Keywords

    G15; G21; C32; Stock co-movements; Asymmetric shocks; Principal components;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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