Modelling stock volatilities during financial crises:a time varying coefficient approach

Abstract

We examine how the most prevalent stochastic properties of key financial time series have been affected during the recent financial crises. In particular we focus on changes associated with the remarkable economic events of the last two decades in the volatility dynamics, including the underlying volatility persistence and volatility spillover structure. Using daily data from several key stock market indices, the results of our bivariate GARCH models show the existence of time varying correlations as well as time varying shock and volatility spillovers between the returns of FTSE and DAX, and those of NIKKEI and Hang Seng, which became more prominent during the recent financial crisis. Our theoretical considerations on the time varying model which provides the platform upon which we integrate our multifaceted empirical approaches are also of independent interest. In particular, we provide the general solution for time varying asymmetric GARCH specifications, which is a long standing research topic. This enables us to characterize these models by deriving, first, their multistep ahead predictors, second, the first two time varying unconditional moments, and third, their covariance structure.

Publication DOI: https://doi.org/10.1016/j.jempfin.2014.08.002
Divisions: College of Business and Social Sciences > Aston Business School
College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship
Additional Information: © 2014 Published by Elsevier B.V. Creative Commons Attribution 3.0 Unported (CC BY 3.0)
Uncontrolled Keywords: financial crisis,structural breaks,time varying GARCH models,volatility spillovers,Economics and Econometrics,Finance
Publication ISSN: 0927-5398
Last Modified: 13 Dec 2024 08:07
Date Deposited: 23 Jun 2015 10:50
Full Text Link:
Related URLs: http://www.scop ... tnerID=8YFLogxK (Scopus URL)
PURE Output Type: Article
Published Date: 2014-12
Published Online Date: 2014-08-28
Authors: Karanasos, Menelaos
Paraskevopoulos, Alexandros G.
Menla Ali, Faek
Karoglou, Michail (ORCID Profile 0000-0002-6730-504X)
Yfanti, Stavroula

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License: Creative Commons Attribution


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