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Which information matters to market risk spreading in Brazil? Volatility transmission modelling using MGARCH-BEKK, DCC, t-Copulas

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  • de Oliveira, Felipe A.
  • Maia, Sinézio F.
  • de Jesus, Diego P.
  • Besarria, Cássio da N.

Abstract

Among a political disorder, there are additional difficulties to predict sources of risk. The objective of this article was to analyze the spillover effects and channels of volatility from and to Brazilian stock market (Bovespa) in the period that goes from 2014 to 2016. In this period, is marked as one of the most volatile periods since the subprime crisis. A political and economic crisis, followed by federal police investigation combined with a period of slow economic growth and unconventional monetary and, a downtrend in commodities prices and in the world, makes the task to identify the sources of price risk dubious. Using a MGARCH-BEKK, DCC and t-Copulas modelling, the main results of the article suggest US monetary policy and rebalancing of portfolios generates volatility to Brazil. However, Bovespa also generates volatility to commodity markets and US bonds market. This is explained by the role that Brazil plays as mediator of these markets when allocators diversify their positions with Latin America and in commodities.

Suggested Citation

  • de Oliveira, Felipe A. & Maia, Sinézio F. & de Jesus, Diego P. & Besarria, Cássio da N., 2018. "Which information matters to market risk spreading in Brazil? Volatility transmission modelling using MGARCH-BEKK, DCC, t-Copulas," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 83-100.
    • Handle: RePEc:eee:ecofin:v:45:y:2018:i:c:p:83-100
    DOI: 10.1016/j.najef.2018.02.003
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    More about this item

    Keywords

    DCC; GARCH-BEKK; t-Copulas; Spillover; Market risk;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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