Country Risk and Volatility of Stock Returns: Panel-GARCH Evidence for Latin America

19 Pages Posted: 18 Aug 2014

See all articles by Rodolfo Cermeño

Rodolfo Cermeño

Center for Research and Teaching of Economics (CIDE) - Division of Economics

Muhammad Tahir Suleman

University of Otago - Department of Accountancy and Finance

Date Written: August 17, 2014

Abstract

This paper studies the link between Country Risk – measured by a country Composite Risk index as well as individual measures of Economic, Financial and Political Risk – and Volatility of Stock Market returns. We use monthly data for eight Latin American countries, over the period January 1993 to December 2013 and model Stock return volatility as a panel-GARCH process. We find significant and persistent volatility patterns for Stock market returns as well as significant and generally positive cross-correlation among different Stock markets. We also find strong support for the hypothesis that higher Country Risk increases Stock market volatility in this region.

Keywords: Country risk, stock market volatility, panel-GARCH models

JEL Classification: C23, F00, G15

Suggested Citation

Cermeño, Rodolfo and Suleman, Muhammad Tahir, Country Risk and Volatility of Stock Returns: Panel-GARCH Evidence for Latin America (August 17, 2014). Available at SSRN: https://ssrn.com/abstract=2482038

Rodolfo Cermeño

Center for Research and Teaching of Economics (CIDE) - Division of Economics ( email )

Carretera Mexico Toluca 3655
01210 Mexico, D.F.
Mexico

Muhammad Tahir Suleman (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

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