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Linkages Among Asset Markets in the United States: Tests in a Bivariate GARCH Framework

Author

Listed:
  • Parha Deb
  • Mr. Salim M. Darbar

Abstract

This paper develops a bivariate GARCH model that allows for time-varying conditional correlations and simultaneous testing of two Granger-causal linkages: the impact of return volatility in a market on intermarket correlation and the impact of return volatility in one market on the volatility of another. Using daily data from stock, bond, currency, and commodity markets in the United States, the paper finds evidence of each form of linkage. Furthermore, the conditional correlations change over time and exhibit considerable persistence. The estimated time-varying conditional correlations provide insight into the nature of the stock market crash of 1987.

Suggested Citation

  • Parha Deb & Mr. Salim M. Darbar, 1999. "Linkages Among Asset Markets in the United States: Tests in a Bivariate GARCH Framework," IMF Working Papers 1999/158, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/158
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    Citations

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    Cited by:

    1. Antonia López Villavicencio & Josep Lluís Raymond Bara, 2006. "The short and long-run determinants of the real exchange rate in Mexico," Working Papers wpdea0606, Department of Applied Economics at Universitat Autonoma of Barcelona.
    2. Heathcote, Jonathan & Perri, Fabrizio, 2004. "Financial globalization and real regionalization," Journal of Economic Theory, Elsevier, vol. 119(1), pages 207-243, November.
    3. Hale, Galina & Arteta, Carlos, 2009. "Currency crises and foreign credit in emerging markets: Credit crunch or demand effect?," European Economic Review, Elsevier, vol. 53(7), pages 758-774, October.
    4. Antonia Lopez Villavicencio, 2006. "Real Equilibrium Exchange Rates: a Panel Data Approach for Advanced and Emerging Economies," Economie Internationale, CEPII research center, issue 108, pages 59-81.
    5. Ms. Susana Garcia Cervero & J. Humberto Lopez & Mr. Enrique Alberola Ila & Mr. Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates: Euro, Dollar, “Ins,” “Outs,” and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 1999/175, International Monetary Fund.
    6. Laborde, David & Rey, Serge, 2001. "Transmission internationale de la volatilité des prix d’actifs financiers : les relations entre les marchés français et américains de 1997 à 2000 [Volatility and cross correlation across asset mark," MPRA Paper 30284, University Library of Munich, Germany.
    7. Grieb, Terrance & Reyes, Mario G., 2002. "The temporal relationship between large- and small-capitalization stock returns:: Evidence from the UK," Review of Financial Economics, Elsevier, vol. 11(2), pages 109-118.
    8. Terrance Grieb & Mario G. Reyes, 2002. "The temporal relationship between large‐ and small‐capitalization stock returns:," Review of Financial Economics, John Wiley & Sons, vol. 11(2), pages 109-118.
    9. Xing, Xuejing, 2004. "A note on the time-series relationship between market industry concentration and market volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(2), pages 105-115, April.

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