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Correlation dynamics in European equity markets

  • Kearney, Colm
  • Poti, Valerio

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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Article provided by Elsevier in its journal Research in International Business and Finance.

Volume (Year): 20 (2006)
Issue (Month): 3 (September)
Pages: 305-321

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Handle: RePEc:eee:riibaf:v:20:y:2006:i:3:p:305-321
Contact details of provider: Web page: http://www.elsevier.com/locate/ribaf

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