Multivariate FIAPARCH modelling of financial markets with dynamic correlations in times of crisis

Karanasos, Menelaos and Yfanti, Stavroula and Karoglou, Michail (2016) Multivariate FIAPARCH modelling of financial markets with dynamic correlations in times of crisis. International Review of Financial Analysis, 45. pp. 332-349. ISSN 1057-5219

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Abstract

This paper applies the vector AR-DCC-FIAPARCH model to eight national stock market indices' daily returns from 1988 to 2010, taking into account the structural breaks of each time series linked to the Asian and the recent Global financial crisis. We find significant cross effects, as well as long range volatility dependence, asymmetric volatility response to positive and negative shocks, and the power of returns that best fits the volatility pattern. One of the main findings of the model analysis is the higher dynamic correlations of the stock markets after a crisis event, which means increased contagion effects between the markets. The fact that during the crisis the conditional correlations remain on a high level indicates a continuous herding behaviour during these periods of increased market volatility. Finally, during the recent Global financial crisis the correlations remain on a much higher level than during the Asian financial crisis.

Item Type:
Journal Article
Journal or Publication Title:
International Review of Financial Analysis
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
123557
Deposited By:
Deposited On:
22 Feb 2018 10:22
Refereed?:
Yes
Published?:
Published
Last Modified:
12 Aug 2020 07:04