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The Contagion Effect Between the Volatilities of the NASDAQ-100 and the IT.CA :A Univariate and A Bivariate Switching Approach

  • Ryan SULEIMANN

    (ECOLE NORMALE SUPERIEURE DE CACHAN)

This article uses models with changes in regime and conditional variance to show the presence of co-movement between the American and the French New Technology indexes, the NASDAQ-100 and the IT.CAC respectively. For the past two years, American and French New Technology stock markets have been fluctuating severely, and it has been observed that the IT.CAC is considerably affected by the NASDAQ- 100. In the first part of this article, we study the volatilities of those two IT indexes, using univariate conditional variance and changes in regime models. We show that the volatilities of the two indexes have considerably increased exhibiting a certain level of correlation. We find signs of a co-movement effect between the volatilities of the NASDAQ-100 and the IT.CAC. The hypothesis of a co-movement effect is discussed in the second part of this article, using a bivariate SWARCH model to show the dependence of the high and low volatility states of the IT.CAC on the NASDAQ-100, with no intermediate simultaneous high-low volatility states.

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Paper provided by EconWPA in its series Econometrics with number 0307002.

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Date of creation: 17 Jul 2003
Date of revision: 18 Jul 2003
Handle: RePEc:wpa:wuwpem:0307002
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