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Switching Volatility in Private International Equity Markets

Listed author(s):
  • Susmel, Raul
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    This paper analyzes the behavior of time-varying volatility when structural changes are allowed in international stock markets. A model developed by Hamilton and Susmel (1994), the switching autoregressive conditional heteroskedastic (SWARCH) model, which is a more general specification than the popular ARCH model, is used. An exponential SWARCH model is fitted to eight series of weekly returns from international stock markets. Evidence is found for switching volatility for the US, Canada, the UK, and Japan. Under the SWARCH model, it is found that ARCH and asymmetric effects are reduced when a switching regime structure is allowed. The switching model is used to date volatility states in international stock markets. These states are compared and it is concluded that domestic volatility states tend to be independent of foreign volatility states, with the exception of Japan and the UK, and the US and Canada. For these two pairs of series, evidence is found for common volatility states. Copyright @ 2000 by John Wiley & Sons, Ltd. All rights reserved.

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    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 5 (2000)
    Issue (Month): 4 (October)
    Pages: 265-283

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    Handle: RePEc:ijf:ijfiec:v:5:y:2000:i:4:p:265-83
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