Influence of Structural Changes in Transmission of Information between Stock Markets: An European Empirical Study
14 Pages Posted: 13 May 2004
Date Written: December 2003
The aim of this study is to analyze the influence that the structural changes on volatility have on the transmission of information. We realized empirical evidence on European stock exchange markets using the principal European stock indexes: UK, Germany, France, Italy and Spain, for European Union and Swiss as European zone no euro. In order to include structural changes in variance, we followed the modification proposed by Sanso et al. (2002) of the methodology put forward by Inclan and Tiao (1994), to take account the problems of kurtosis and heteroskedasticity of the analyzed series. To study the existence of transmission of volatility we have used an asymmetric Bivariate GARCH model, specifically, the time-varying covariance asymmetric BEKK model (Engle and Kroner, 1995).
The most outstanding result is the significance of the variables that represent these changes. Their consideration reduces the volatility persistence and influences the scheme of transmission. So structural changes must be incorporated in these types of studies.
Keywords: European volatility transmission, time-varying covariance, international markets, bivariate GARCH, asymmetry, structural changes in variance
Suggested Citation: Suggested Citation