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Univariate and Bivariate Volatility in Central European Stock Markets

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  • Claudiu Boţoc

Abstract

This paper examines if the volatility exhibits a symmetric or an asymmetric response to past shocks, particularly the relevance of structural breaks for Central European (hereinafter referred to as "CEE") stock markets. In addition, it is of great interest to see if the CEE emerging markets are correlated with other emerging ones, as well as to analyse the correlation with the developed markets, for optimizing investment portfolios. Using a CEE group approach (regional index) and daily data from 2002 to 2015, the results suggest that markets react differently to similar negative and positive returns, except for the rapid growth period, when the greed sentiment dominates the markets. Furthermore, the structural break dates affect volatility, the highest asymmetric coefficient being recorded for the pre-crisis period. For the bivariate approach, the emerging markets and developed markets indexes provided by the Morgan Stanley Capital International (hereinafter referred to as "MSCI") have been considered and the results suggest that CEE stock markets are correlated with emerging stock markets rather than developed ones. For both pairs, the correlation is consistently higher for the break dates characterized by an increase in volatility, which is in line with the literature that claims that the co-movements increase when international factors dominate the national ones, and influence stock markets.

Suggested Citation

  • Claudiu Boţoc, 2017. "Univariate and Bivariate Volatility in Central European Stock Markets," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(2), pages 127-141.
    • Handle: RePEc:prg:jnlpep:v:2017:y:2017:i:2:id:598:p:127-141
    DOI: 10.18267/j.pep.598
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    References listed on IDEAS

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    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
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    More about this item

    Keywords

    volatility; asymmetry; structural breaks; contagion; multivariate GARCH;
    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
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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