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Periodic Dynamic Conditional Correlations between Stock Markets in Europe and the US

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  • Christos S. Savva
  • Denise R. Osborn
  • Len Gill

Abstract

This study extends the dynamic conditional correlation model of Engle (2002, Journal of Business and Economic Statistics 20, 339--350) to allow periodic (day-specific) conditional correlations of shocks across international stock markets. The properties of the resulting periodic dynamic conditional correlation (PDCC) model are examined, focusing particularly on stationarity and the implications for unconditional shock correlations. When applied to the intraweek interactions between six developed European stock markets and the United States over 1993--2005, we find very strong evidence of periodic conditional correlations for the shocks. The highest correlations are generally observed on Thursdays, with these sometimes being twice those on Monday or Tuesday. In addition to these PDCC effects, strong day-of-the-week effects are found in mean returns for the French, Italian, and Spanish stock markets, while periodic effects are also present in volatility for all stock markets except Italy. Copyright The Author 2008. Published by Oxford University Press. All rights reserved. For Permissions, please e-mail: journals.permissions@oupjournals.org, Oxford University Press.

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File URL: http://hummedia.manchester.ac.uk/schools/soss/economics/discussionpapers/EDP-0629.pdf
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Paper provided by Economics, The University of Manchester in its series The School of Economics Discussion Paper Series with number 0629.

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Date of creation: 2006
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Handle: RePEc:man:sespap:0629
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Cited by:

  1. Georgios Bampinas & Stilianos Fountas & Theodore Panagiotidis, 2015. "The Day-of-the-Week Effect is Weak: Evidence from the European Real Estate Sector," Working Paper Series 15-19, The Rimini Centre for Economic Analysis.
  2. Marie Briere & Ariane Chapelle & Ariane Szafarz, 2008. "No contagion, only globalization and flight to quality," DULBEA Working Papers 08-22.RS, ULB -- Universite Libre de Bruxelles.
  3. Aknouche, Abdelhakim, 2013. "Periodic autoregressive stochastic volatility," MPRA Paper 69571, University Library of Munich, Germany, revised 2015.
  4. Iglesias, Emma M., 2015. "Value at Risk and expected shortfall of firms in the main European Union stock market indexes: A detailed analysis by economic sectors and geographical situation," Economic Modelling, Elsevier, vol. 50(C), pages 1-8.

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