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Volatility Spillovers and Contagion from Mature to Emerging Stock Markets

49 Pages Posted: 15 Nov 2009  

John Beirne

European Central Bank (ECB)

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute)

Marianne Schulze-Ghattas

International Monetary Fund (IMF)

Nicola Spagnolo

Brunel University

Multiple version iconThere are 4 versions of this paper

Date Written: November 13, 2009

Abstract

This paper models volatility spillovers from mature to emerging stock markets, tests for changes in the transmission mechanism during turbulences in mature markets, and examines the implications for conditional correlations between mature and emerging market returns. Tri-variate GARCH-BEKK models of returns in mature, regional emerging, and local emerging markets are estimated for 41 emerging market economies (EMEs). Wald tests suggest that mature market volatility affects conditional variances in many emerging markets. Moreover, spillover parameters change during turbulent episodes. In the majority of the sample EMEs, conditional correlations between local and mature markets increase during these episodes. While conditional variances in local markets rise as well, volatility in mature markets rises more, and this shift is the main factor behind the increase in conditional correlations. With few exceptions, conditional beta coefficients between mature and emerging markets tend to be unchanged or lower during turbulences.

Keywords: Volatility spillovers, Contagion, Stock markets, Emerging markets

JEL Classification: F30, G15

Suggested Citation

Beirne, John and Caporale, Guglielmo Maria and Schulze-Ghattas, Marianne and Spagnolo, Nicola, Volatility Spillovers and Contagion from Mature to Emerging Stock Markets (November 13, 2009). ECB Working Paper No. 1113. Available at SSRN: https://ssrn.com/abstract=1502468

John Beirne (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
Marie Jahoda Building
Uxbridge, Middlesex UB8 3PH
United Kingdom
+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Marianne Schulze-Ghattas

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nicola Spagnolo

Brunel University ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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