Volatility in Emerging Stock Markets Revisited

EFMA 2002 London Meetings

36 Pages Posted: 2 Jun 2002  

Michel Dubois

University of Neuchatel - Institute of Financial Analysis

Jean-Francois Bacmann

RMF Investment Management


This study examines the issue of detecting permanent shifts in the volatility of emerging stock market indexes returns. We show that standard tests have no power in disentangling conditional heteroscedasticity versus jumps in the variance of stock returns. We propose two methods to detect jumps in the variance when there is conditional heteroscedasticity. The first one is based on the properties of temporal aggregation of GARCH (1, 1) models. The second one consists in filtering the stock returns series with a GARCH (1, 1) model in conjunction with the ICSS algorithm. We show that jumps in variance are less frequent than previously believed. Moreover, the jumps are country specific so that they can be diversified.

Suggested Citation

Dubois, Michel and Bacmann, Jean-Francois, Volatility in Emerging Stock Markets Revisited. EFMA 2002 London Meetings. Available at SSRN: https://ssrn.com/abstract=313932 or http://dx.doi.org/10.2139/ssrn.313932

Michel Dubois

University of Neuchatel - Institute of Financial Analysis ( email )

Pierre-a-Mazel, 7
Neuchatel, 2000
41 32 718 13 66 (Phone)
41 32 718 13 61 (Fax)

Jean-Francois Bacmann (Contact Author)

RMF Investment Management ( email )

Huobstrasse 16
8808 Pfaeffikon SZ
41 55 417 77 10 (Phone)
41 55 417 77 11 (Fax)

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