Periodic Dynamic Conditional Correlations between Stock Markets in Europe and the Us

Posted: 17 Jun 2008

See all articles by Denise R. Osborn

Denise R. Osborn

University of Manchester - School of Social Sciences; University of Tasmania

Christos Savva Savva

University of Manchester - School of Social Sciences

Len Gill

University of Manchester - School of Social Sciences

Date Written: Summer 2008

Abstract

This study extends the dynamic conditional correlation model of Engle (2002, Journal of Business and Economic Statistics 20, 339-350) to allow periodic (day-specific) conditional correlations of shocks across international stock markets. The properties of the resulting periodic dynamic conditional correlation (PDCC) model are examined, focusing particularly on stationarity and the implications for unconditional shock correlations. When applied to the intraweek interactions between six developed European stock markets and the United States over 1993-2005, we find very strong evidence of periodic conditional correlations for the shocks. The highest correlations are generally observed on Thursdays, with these sometimes being twice those on Monday or Tuesday. In addition to these PDCC effects, strong day-of-the-week effects are found in mean returns for the French, Italian, and Spanish stock markets, while periodic effects are also present in volatility for all stock markets except Italy.

Keywords: G10, G12, G22, Day-of-the-week-effect, dynamic conditional correlations, periodic models, volatility

Suggested Citation

Osborn, Denise R. and Savva, Christos Savva and Gill, Len, Periodic Dynamic Conditional Correlations between Stock Markets in Europe and the Us (Summer 2008). Journal of Financial Econometrics, Vol. 6, Issue 3, pp. 307-325, 2008, Available at SSRN: https://ssrn.com/abstract=1146710 or http://dx.doi.org/nbn005

Denise R. Osborn (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Christos Savva Savva

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

HOME PAGE: http://www.socialsciences.man.ac.uk/economics/research/phd/csavva.htm

Len Gill

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom
0161 275 4862 (Phone)

HOME PAGE: http://les1.man.ac.uk/ses/staffpages/gill.htm

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