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Dynamic Stock Market Covariances in the Eurozone

  • Gregory Connor

    ()

    (Department of Economics Finance and Accounting, National University of Ireland, Maynooth)

  • Anita Suurlaht

    ()

    (Department of Economics Finance and Accounting, National University of Ireland, Maynooth)

This paper examines the short-term dynamics, macroeconomic sensitivities, and longer-term trends in the variances and covariances of national equity market index daily returns for eleven countries in the Euro currency zone. We modify Colacito, Engle and Ghysel?s Mixed Data Sampling Dynamic Conditional Correlation Garch model to include a new scalar measure for the degree of correlatedness in time-varying correlation matrices. We also explore the robustness of the fi?ndings with a less model-dependent realized covariance estimator. We fi?nd a secular trend toward higher correlation during our sample period, and signi?cant linkages between macroeconomic and market-wide variables and dynamic correlation. One notable fi?nding is that average correlation between these markets is lower when their average GDP growth rate is lower or when more of them have negative GDP growth.

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File URL: http://repec.maynoothuniversity.ie/mayecw-files/N222-12.pdf
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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n222-12.pdf.

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Length: 30 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:may:mayecw:n222-12.pdf
Contact details of provider: Postal: Maynooth, Co. Kildare
Phone: 353-1-7083728
Fax: 353-1-7083934
Web page: http://www.maynoothuniversity.ie/economics-finance-and-accounting
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