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Shock transmission among the European Stock markets - Conferinta CRESTERE ECONOMICA SI SUSTENABILITATE SOCIALA. PROVOCARI SI PERSPECTIVE EUROPENE>

  • Lupu, Radu
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    The analysis of the comovements of stock market returns was approached with many modeling techniques ranging from the simple and GARCH style dynamic conditional correlation to multivariate GARCH and studies of the bivariate distribution. The quest for the analysis of the now standardized concept of international contagion made room for the employment of all these techniques. Our paper focuses on the analysis of the comovements in the volatilities of the returns of stock market indices from the most important developed and emerging European countries, using different forms of computation for different frequencies, starting from intra-day 5-minute returns to weekly returns (data used from Bloomberg). After a brief characterization of the distribution of returns and a reconfirmation of the stylized facts for the European emerging markets we focus on the clustering effect of volatilities, in the attempt to identify the moments when a new cluster is formed, i.e. when the volatilities change their size (from small to big or from big to small). The analysis of these events for the respective countries intends to reveal the mechanism of international information transmission. The paper also fits a jump-diffusion process, along the lines of Maheu and McCurdy (2007) adjusted for the series of volatilities, where the Poisson process characterizes the time until a change in the volatility cluster occurs.

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    File URL: http://www.ipe.ro/RePEc/WorkingPapers/wpconf101101.pdf
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    Paper provided by Institute for Economic Forecasting in its series Institute for Economic Forecasting Conference Proceedings with number 101101.

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    Length: 10 pages
    Date of creation: Oct 2011
    Date of revision:
    Handle: RePEc:rjr:wpconf:101101
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    1. Brooks, Robin & Del Negro, Marco, 2005. "Firm-level evidence on international stock market comovement," Discussion Paper Series 1: Economic Studies 2005,11, Deutsche Bundesbank, Research Centre.
    2. Campbell R. Harvey, 1994. "Predictable Risk and Returns in Emerging Markets," NBER Working Papers 4621, National Bureau of Economic Research, Inc.
    3. B Harrison & W Moore, 2010. "Stock Market Co-Movement in the Caribbean," Economic Issues Journal Articles, Economic Issues, vol. 15(1), pages 1-15, March.
    4. Brooks, Robin & Del Negro, Marco, 2004. "The rise in comovement across national stock markets: market integration or IT bubble?," Journal of Empirical Finance, Elsevier, vol. 11(5), pages 659-680, December.
    5. Mervyn King & Enrique Sentana & Sushil Wadhwani, 1990. "Volatiltiy and Links Between National Stock Markets," NBER Working Papers 3357, National Bureau of Economic Research, Inc.
    6. Kizys, Renatas & Pierdzioch, Christian, 2009. "Changes in the international comovement of stock returns and asymmetric macroeconomic shocks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(2), pages 289-305, April.
    7. Didier, Tatiana & Love, Inessa & Peria, Maria Soledad Martinez, 2010. "What explains stock markets'vulnerability to the 2007-2008 crisis ?," Policy Research Working Paper Series 5224, The World Bank.
    8. Chib, Siddhartha & Nardari, Federico & Shephard, Neil, 2002. "Markov chain Monte Carlo methods for stochastic volatility models," Journal of Econometrics, Elsevier, vol. 108(2), pages 281-316, June.
    9. Horobet, Alexandra & Lupu, Radu, 2009. "Are Capital Markets Integrated? A Test of Information Transmission within the European Union," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 64-80, June.
    10. François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
    11. Candelon, Bertrand & Piplack, Jan & Straetmans, Stefan, 2008. "On measuring synchronization of bulls and bears: The case of East Asia," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1022-1035, June.
    12. António Rua & Luís Catela Nunes, 2009. "International comovement of stock market returns: a wavelet analysis," Working Papers w200904, Banco de Portugal, Economics and Research Department.
    13. Anete Pajuste, 2002. "Corporate Governance and Stock Market Performance in Central and Eastern Europe: A Study of nine countries, 1994-2001”," Working Papers 22, CENTRE FOR THE STUDY OF ECONOMIC AND SOCIAL CHANGE IN EUROPE,School of Slavonic and East European Studies,University College London (SSEES,UCL).
    14. Harrison, Barry & Moore, Winston, 2009. "Stock Market Como Vement In The European Union And Transition Countries," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 13(3), pages 124-151.
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