The Impact of Institutional Volatility on Financial Volatility in Transition Economies: A GARCH Family Approach

63 Pages Posted: 18 Mar 2014

See all articles by Christopher Andrew Hartwell

Christopher Andrew Hartwell

CASE - Center for Social and Economic Research; Department of International Management

Date Written: February 13, 2014

Abstract

The volatility of financial markets has been a relevant topic for transition economies, as the countries of Central and Eastern Europe and the former Soviet Union have seemingly endured high levels of volatility in their financial sectors during the transition process. But what have been the determinants of this financial volatility? This paper posits that institutional changes, and in particular the volatility of various crucial institutions, have been the major causes of financial volatility in transition. Examining 20 transition economies over various time-frames within the period 1993-2012, this paper applies the GARCH family of models to examine financial volatility as a function of institutional volatility. The results from the EGARCH and TGARCH modelling supports the thesis that more advanced and more stable institutions help to dampen financial sector volatility at their levels, while institutional volatility feeds through directly to financial sector volatility in transition.

Keywords: institutions, financial sector, volatility, transition, GARCH, EGARCH, TGARCH

JEL Classification: G20, O43, P30

Suggested Citation

Hartwell, Christopher Andrew, The Impact of Institutional Volatility on Financial Volatility in Transition Economies: A GARCH Family Approach (February 13, 2014). BOFIT Discussion Paper No. 6/2014. Available at SSRN: https://ssrn.com/abstract=2410213 or http://dx.doi.org/10.2139/ssrn.2410213

Christopher Andrew Hartwell (Contact Author)

CASE - Center for Social and Economic Research ( email )

Al. Jana Pawła II 61/212
Warsaw, 01-031
Poland

Department of International Management ( email )

ul. JagielloDska 57/59
Warsaw, 03-303
Poland

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