Returns, correlations, and volatilities in equity markets: Evidence from six OECD countries during the US financial crisis

Cited 5 time in webofscience Cited 0 time in scopus
  • Hit : 409
  • Download : 0
We investigate the dynamic interactions between stock-market excess returns, time-varying correlations and volatilities in six OECD countries and the United States during the US financial crisis and its aftermath. Using the seemingly-unrelated regression (SUR) and panel-regression models with return, correlation, and volatility equations, we show that excess returns can explain both correlations and volatilities and that own volatility can explain both excess returns and correlations. However, we find that correlations can explain neither excess returns nor volatilities. We find new and important evidence that 'excess returns,' US excess returns,' and 'US volatilities' should be included in the analysis of other countries' correlations and volatilities. The US T-bill-LIBOR interest-rate differential (TED spread) and foreign-exchange market volatility (FXV) negatively affect excess returns; however, the credit-default swap spread's effect is insignificant. Our findings are robust with different definitions of the key variables; they also provide important implications for international risk diversification: as financial-market conditions (measured by the TED spread and FXV) deteriotate, the links between stock-market returns,,correlations, and volatilities appear to be strengthened. (C) 2016 Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2016-12
Language
English
Article Type
Article
Keywords

AUTOREGRESSIVE CONDITIONAL HETEROSKEDASTICITY; INTERNATIONAL EVIDENCE; PREDICTABILITY; HYPOTHESIS; COINTEGRATION; MODELS; TESTS; PRICE

Citation

ECONOMIC MODELLING, v.59, pp.9 - 22

ISSN
0264-9993
DOI
10.1016/j.econmod.2016.06.016
URI
http://hdl.handle.net/10203/214813
Appears in Collection
RIMS Journal Papers
Files in This Item
There are no files associated with this item.
This item is cited by other documents in WoS
⊙ Detail Information in WoSⓡ Click to see webofscience_button
⊙ Cited 5 items in WoS Click to see citing articles in records_button

qr_code

  • mendeley

    citeulike


rss_1.0 rss_2.0 atom_1.0