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

Karanasos, Menelaos, 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.

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.

Publication DOI: https://doi.org/10.1016/j.irfa.2014.09.002
Divisions: Aston Business School > Economics finance & entrepreneurship
Aston Business School
Additional Information: © 2014 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/).
Uncontrolled Keywords: contagion effects,dynamic conditional correlation,financial crisis,GARCH,long memory,multivariate,structural breaks,Economics and Econometrics,Finance
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Related URLs: http://www.scop ... tnerID=8YFLogxK (Scopus URL)
Published Date: 2016-05
Authors: Karanasos, Menelaos
Yfanti, Stavroula
Karoglou, Michail ( 0000-0002-6730-504X)

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