Volatility in Stock Markets: A Comparison of Developed and Emerging Markets of the World
Keywords:
ARCH, GARCH, volatility, developed markets, emerging markets, MSCI indexAbstract
Volatility in markets is the growing area of crucial attention which is being analysed by many academicians over the world. The reason being that with the passage of time, the probability of deviation of the prices from the initial intrinsic value increases. In this research we have tried to model the volatility of two indices: MSCI emerging markets index and MSCI world index with the use of ARCH and GARCH models. The volatility clustering and ARCH effect were seen and the models were constructed. Both the ARCH and GARCH terms were found to be significant in both the market indices. It was found that in emerging markets, yesterday’s volatility had greater influence in explaining today’s volatility while in case of developed markets, both yesterday’s volatility and information had immense influence in explaining today’s volatility. The information is of immense use to the finance professionals and investors and can help them in taking correct portfolio decisions.
References
Abidin, S., Reddy, K., & Zhang, C. (2014). Intensity of price and volatility spillover effects in Asia-Pacific Basin equity markets. Australasian accounting, business and finance journal, 8(5), 3-18.
Adrangi, B., Chatrath, A., & Raffiee, K. (2014). Volatility spillovers across major equity markets of Americas. International journal of business, 19(3), 255-274.
Allen, D., Amram, R., & McAleer, M. (2013). Volatility spillovers from the Chinese stock market to economic neighbours. Mathematics and computers in simulation, 94, 238-257.
Bhar, R., & Nikolova, B. (2009). Return, volatility spillovers an dynamic correlation in the BRIC equity markets: An analysis using a bivariate EGARCH framework. Global finance journal, 203-218.
Chong, C. (2011). Effect of subprime crisis on U.S. stock market return and volatility. Global economy and finance journal, 4(1), 102-111.
Hassan, S., & Malik, F. (2007). Multivariate GARCH modeling of sector volatility transmission. The quarterly review of economics and finance, 47, 470-480.
Mukherjee, K., & Mishra, R. (2010). Stock market integration and volatility spillover: India and its major Asian counterparts. Research in international business and finance, 24, 235-251.
Nishimura, Y., Tsutsui, Y., & Hirayama, K. (2015). Intraday return and volatility spillover mechanism from Chinese to Japanese stock market. Journal of the Japanese and international economies, 35, 23-42.
Park, S., Kang, S., & Yoon, S. (2015). Volatility spillover effect betweenUS and Japanese stock markets. International conference on Humanities, Literature and Management.
