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Which information matters to Market risk spreading in Brazil? Volatility transmission modeling using MGARH-BEKK, DCC, t-COPULAS

Author

Listed:
  • Felipe de Oliveira
  • Sinézio Fernandes Maia
  • Diego Pita de Jesus

Abstract

This paper aims to test the volatility characteristics and transmission relationship among Brazil and USA stock markets. The strongly linked relationship of capital flows from developed to emerging markets is of interest of portfolio managers with implications about diversification. Moreover, the sample period studied - that goes from December of 2014 to December of 2016-, present some challenges to managers due to the difficulties to distinguish the relevant flow of information (local or transmission). In that period occurred in Brazil presidential elections, impeachment and corruption scandals. Meanwhile, the Brexit and presidential elections in USA promoted some noises in international markets. The sample period is from December of 2014 to December 2016. The database used are daily frequency prices of the Brazilian stock market’s index Bovespa and the Americans’ index is S&P 500. Garch Family models (ARCH, GARCH, EGARCH, TGARCH) were used to understand the idionsycratic characteristics of volatility dynamics in these markets. Moreover, this study used Bivariate MGARCH – BEKK modelling to investigate the spillover effect between markets. The preliminary results show evidences that these financial series fits well in time varying variance models. Additionally, the Brazilian market is characterized as less efficient than the USA market. Whereas, is more persistent with shocks in volatility lasting more to vanish.

Suggested Citation

  • Felipe de Oliveira & Sinézio Fernandes Maia & Diego Pita de Jesus, 2017. "Which information matters to Market risk spreading in Brazil? Volatility transmission modeling using MGARH-BEKK, DCC, t-COPULAS," EcoMod2017 10378, EcoMod.
    • Handle: RePEc:ekd:010027:10378
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    References listed on IDEAS

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