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Higher-Order Terms in Bivariate Returns to International Stock Market Indices

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  • Kirt C. Butler

    (Michigan State University, U.S.A.)

  • Katsushi Okada

    (Michigan State University, U.S.A.)

Abstract

This article documents the stochastic properties of bivariate returns to international stock market indices. In particular, the article searches for the best fit among a class of higher-order VARMA(u,v)-EGARCH(p,q) models with normal errors and a constant conditional correlation using MSCI domestic and world-ex-domestic index pairs for the Emu, Japan, the United Kingdom, and the United States. Although a first-order VAR or VMA specification is sufficient to accommodate the conditional means, second-order EGARCH terms are necessary in two of the four bivariate series.

Suggested Citation

  • Kirt C. Butler & Katsushi Okada, 2008. "Higher-Order Terms in Bivariate Returns to International Stock Market Indices," Multinational Finance Journal, Multinational Finance Journal, vol. 12(1-2), pages 127-155, March-Jun.
    • Handle: RePEc:mfj:journl:v:12:y:2008:i:1-2:p:127-155
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    2. Stephen Matteo Miller, 2012. "Booms and Busts as Exchange Options," Multinational Finance Journal, Multinational Finance Journal, vol. 16(3-4), pages 189-223, September.

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    More about this item

    Keywords

    higher-order; bivariate; international diversification; EGARCH; VARMA;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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