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Empirical Modeling of Latin American Stock and Forex Markets Returns and Volatility using Markov-Switching GARCH Models

Author

Listed:
  • Miguel Ataurima Arellano
  • Erika Collantes

    (Departamento de Economía de la Pontificia Universidad Católica del Perú)

  • Gabriel Rodriguez

    (Departamento de Economía de la Pontificia Universidad Católica del Perú)

Abstract

Using a sample of weekly frequency of the stock and Forex markets returns series, we estimate a set of Markov-Switching-Generalized Autoregressive Conditional Heterocedasticity (MS-GARCH) models to a set of Latin American countries (Brazil, Chile, Colombia, Mexico and Peru) with an approach based on both the Monte Carlo Expectation-Maximization (MCEM) and Monte Carlo Maximum Likelihood (MCML) algorithms. The estimates are compared with a standard GARCH, MS and other models. The results show that the volatility persistence is captured di§erently in the MS and MS-GARCH models. The estimated parameters with a standard GARCH model exacerbates the volatility in almost double compared to MS-GARCH model and a lower likelihood with the other model than MS-GARCH model. There is di§erent behavior of the coe¢ cients and the variance according the two regimes (high and low volatility) by each model in the Latin American stock and Forex markets. There are common episodes related to global international crises and also domestic events producing the di§erent behavior in the volatility of each time series. JEL Classification-JEL: C22, C52, C53

Suggested Citation

  • Miguel Ataurima Arellano & Erika Collantes & Gabriel Rodriguez, 2017. "Empirical Modeling of Latin American Stock and Forex Markets Returns and Volatility using Markov-Switching GARCH Models," Documentos de Trabajo / Working Papers 2017-436, Departamento de Economía - Pontificia Universidad Católica del Perú.
    • Handle: RePEc:pcp:pucwps:wp00436
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    File URL: http://repositorio.pucp.edu.pe/index/handle/123456789/126767
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    Citations

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    Cited by:

    1. Ataurima Arellano, Miguel & Rodríguez, Gabriel, 2020. "Empirical modeling of high-income and emerging stock and Forex market return volatility using Markov-switching GARCH models," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    2. Guillermo Jopen Sánchez, 2017. "Factores discrecionales y no discrecionales de la eficiencia educativa: evidencias para el caso peruano," Documentos de Trabajo / Working Papers 2017-437, Departamento de Economía - Pontificia Universidad Católica del Perú.

    More about this item

    Keywords

    MS-GARCH Models; GARCH Models; Returns; Volatility; Latin-American Stock market; Latin-American Forex market.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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