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Volatility Dependence and Contagion in Emerging Equity Markets


  • Sebastian Edwards
  • Raul Susmel


In this paper we use weekly stock market data for a group of Latin American countries to analyze the behavior of volatility through time. We are particularly interested in understanding whether periods of high volatility are correlated across countries. The analysis uses both on univariate and bivariate switching volatility models. Our results do not rely on the correlation coefficients, but on the co-dependence of volatility regimes. The results indicate that high-volatility episodes are, in general, short-lived, lasting from two to twelve weeks. We find strong evidence of volatility co-movements across countries, especially among the Mercosur countries.

Suggested Citation

  • Sebastian Edwards & Raul Susmel, 2001. "Volatility Dependence and Contagion in Emerging Equity Markets," NBER Working Papers 8506, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8506
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    References listed on IDEAS

    1. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
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    4. Ball, Clifford A. & Torous, Walter N., 1995. "Regime Shifts in Short Term Riskless Interest Rates," University of California at Los Angeles, Anderson Graduate School of Management qt5hs021jf, Anderson Graduate School of Management, UCLA.
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    7. Hamilton, James D., 1996. "Specification testing in Markov-switching time-series models," Journal of Econometrics, Elsevier, vol. 70(1), pages 127-157, January.
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    14. Lamoureux, Christopher G & Lastrapes, William D, 1990. "Persistence in Variance, Structural Change, and the GARCH Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 225-234, April.
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    17. Engle, Robert F & Ito, Takatoshi & Lin, Wen-Ling, 1990. "Meteor Showers or Heat Waves? Heteroskedastic Intra-daily Volatility in the Foreign Exchange Market," Econometrica, Econometric Society, vol. 58(3), pages 525-542, May.
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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