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Global Financial Crises and Time-varying Volatility Comovement in World Equity Markets

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  • Alain Kabundi
  • Andrew S. Duncan

Abstract

This paper studies volatility comovement in world equity markets between 1994 and 2008. Global volatility factors are extracted from a panel of monthly volatility proxies relating to 25 developed and 20 emerging stock markets. A dynamic factor model (FM) is estimated using two-year rolling-window regressions. The FM's time-varying variance shares of global factors map variations in volatility comovement over time and across countries. The results indicate that global volatility linkages are significantly stronger during financial crisis periods in Asia (1997-1998), Brazil (1999), Russia (1998) and the United States (2000, 2007-2008). Emerging markets are weakly synchronised with world volatility in comparison with developed markets. In particular, emerging market comovement is significantly lower than developed market comovement during the Asian and US sub-prime crises. This suggests a degree of decoupling of emerging markets from the global drivers of volatility during these periods.
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Suggested Citation

  • Alain Kabundi & Andrew S. Duncan, 2011. "Global Financial Crises and Time-varying Volatility Comovement in World Equity Markets," ERSA Working Paper Series 253, Economic Research Southern Africa.
    • Handle: RePEc:rza:ersawp:253
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    2. Wang, Ze & Gao, Xiangyun & Huang, Shupei & Sun, Qingru & Chen, Zhihua & Tang, Renwu & Di, Zengru, 2022. "Measuring systemic risk contribution of global stock markets: A dynamic tail risk network approach," International Review of Financial Analysis, Elsevier, vol. 84(C).
    3. Hu, Haoshen & Kaspereit, Thomas & Prokop, Jörg, 2016. "The information content of issuer rating changes: Evidence for the G7 stock markets," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 99-108.
    4. Tiwari, Aviral Kumar & Cunado, Juncal & Gupta, Rangan & Wohar, Mark E., 2018. "Volatility spillovers across global asset classes: Evidence from time and frequency domains," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 194-202.
    5. Tatyana A. Khudyakova & Andrey V. Shmidt, 2019. "Impact of the Global Recession on Financial and Economic Sustainability of Industrial Companies," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 143-157.

    More about this item

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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