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Latin American stock markets’ volatility spillovers during the financial crises: a multivariate FIAPARCH-DCC framework

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  • Chaker Aloui

Abstract

The main purpose of this paper is to analyse the volatility spillovers in Latin American emerging stock markets. A multivariate Fractionally Integrated Asymmetric Power ARCH model with dynamic conditional correlations of Engle (1982) with a Student-t distribution is employed. We examine whether considering for long memory and asymmetry in emerging stock markets behaviour may provide more insights into the volatility spillovers phenomenon. In this paper we select daily frequency stock indexes covering four emerging countries in Latin America for the period (January 1995--September 2009). Our results point out the importance of volatility spillovers in these countries. Moreover, long memory and asymmetry in emerging stock market dynamics seem to provide more insights into the transmission of volatility shocks. More interestingly, the analysis of the DCCEs behaviour over time via multivariate cointegration, vector error correction model and the Cholesky variance decomposition shows shifts behaviour around major Latin American financial crisis and recent subprime crisis. On the practical side, these results may be useful for international portfolio managers and Latin American stock market authorities.

Suggested Citation

  • Chaker Aloui, 2011. "Latin American stock markets’ volatility spillovers during the financial crises: a multivariate FIAPARCH-DCC framework," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 4(2), pages 289-326, May.
  • Handle: RePEc:taf:macfem:v:4:y:2011:i:2:p:289-326
    DOI: 10.1080/17520843.2011.590597
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    References listed on IDEAS

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    1. Jonathan Dark, 2004. "Bivariate error correction FIGARCH and FIAPARCH models on the Australian All Ordinaries Index and its SPI futures," Monash Econometrics and Business Statistics Working Papers 4/04, Monash University, Department of Econometrics and Business Statistics.
    2. CHIA-LIN CHANG & MICHAEL McALEER & ROENGCHAI TANSUCHAT, 2012. "Modelling Long Memory Volatility In Agricultural Commodity Futures Returns," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 1-27.
    3. Gamini Premaratne & Lakshmi Bala, 2004. "Stock Market Volatility: Examining North America, Europe and Asia," Econometric Society 2004 Far Eastern Meetings 479, Econometric Society.
    4. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    5. Wolfgang Härdle & Julius Mungo, 2008. "Value-at-Risk and Expected Shortfall when there is long range dependence," SFB 649 Discussion Papers SFB649DP2008-006, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    6. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    7. Heiko Hesse & Nathaniel Frank & Brenda Gonzalez-Hermosillo, 2008. "Transmission of Liquidity Shocks; Evidence from the 2007 Subprime Crisis," IMF Working Papers 08/200, International Monetary Fund.
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    Cited by:

    1. Karanasos, Menelaos & Yfanti, Stavroula & Karoglou, Michail, 2016. "Multivariate FIAPARCH modelling of financial markets with dynamic correlations in times of crisis," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 332-349.
    2. Yarovaya, Larisa & Lau, Marco Chi Keung, 2016. "Stock market comovements around the Global Financial Crisis: Evidence from the UK, BRICS and MIST markets," Research in International Business and Finance, Elsevier, vol. 37(C), pages 605-619.
    3. repec:eee:pacfin:v:43:y:2017:i:c:p:124-150 is not listed on IDEAS
    4. repec:eee:ememar:v:32:y:2017:i:c:p:1-27 is not listed on IDEAS
    5. Güloğlu, Bülent & Kaya, Pınar & Aydemir, Resul, 2016. "Volatility transmission among Latin American stock markets under structural breaks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 462(C), pages 330-340.

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