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Regime Shifts and Volatility Spillovers on International Stock Markets

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  • Hassler., John

    (Institute for International Economic Studies, Stockholm University)

Abstract

A standard capital asset pricing model is extended to allow for stochastic shifts in the volatility of the news process. This model is then estimated on bivariate stock market data to separate two exogenous news processes – a world and a domestic. The results indicate that the influence of the world news process on the Swedish stock market has increased significantly over the period 1970-1995. I also find that the foreign influence is much stronger when the volatility of the world news process is high. Furthermore, when the world state shifts to high risk, the Swedish stock market immediately reacts by a large fall, estimated to 7.0%. The bivariate model is also estimated on a set of other national stock markets.

Suggested Citation

  • Hassler., John, 1997. "Regime Shifts and Volatility Spillovers on International Stock Markets," Seminar Papers 603, Stockholm University, Institute for International Economic Studies.
    • Handle: RePEc:hhs:iiessp:0603
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    4. Oetzel, Jennifer M. & Bettis, Richard A. & Zenner, Marc, 2001. "Country risk measures: how risky are they?," Journal of World Business, Elsevier, vol. 36(2), pages 128-145, July.
    5. Billio, Monica & Pelizzon, Loriana, 2003. "Contagion and interdependence in stock markets: Have they been misdiagnosed?," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 405-426.

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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