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Simultaneity and asymmetry of returns and volatilities: the emerging Baltic States' stock exchanges
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
Department of Quantitative Economics, University of Amsterdam.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
2012 (English)In: Studies in Nonlinear Dynamics and Econometrics, ISSN 1081-1826, E-ISSN 1558-3708, Vol. 16, no 1, 22 p.Article in journal (Refereed) Published
Abstract [en]

The paper suggests a nonlinear and multivariate time series model framework that enables the study of simultaneity in returns and in volatilities, as well as asymmetric effects arising from shocks. Using daily data 2000-2006 for the Baltic state stock exchanges and that of Moscow we find recursive structures with Riga directly depending in returns on Tallinn and Vilnius, and Tallinn on Vilnius. For volatilities both Riga and Vilnius depend on Tallinn. In addition,we find evidence of asymmetric effects of shocks arising in Moscow and in the Baltic state on both returns and volatilities.

Place, publisher, year, edition, pages
Walter de Gruyter, 2012. Vol. 16, no 1, 22 p.
Keyword [en]
Time series, nonlinear, multivariate, finance, value at risk, portfolio allocation
National Category
Economics
Research subject
Econometrics
Identifiers
URN: urn:nbn:se:umu:diva-22196DOI: 10.1515/1558-3708.1855OAI: oai:DiVA.org:umu-22196DiVA: diva2:213642
Distributor:
Institutionen för nationalekonomi, 90187, Umeå
Available from: 2009-04-28 Created: 2009-04-27 Last updated: 2017-12-13Bibliographically approved
In thesis
1. On Risk Prediction
Open this publication in new window or tab >>On Risk Prediction
2009 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis comprises four papers concerning risk prediction.

Paper [I] suggests a nonlinear and multivariate time series model

framework that enables the study of simultaneity in returns and in

volatilities, as well as asymmetric effects arising from shocks. Using

daily data 2000-2006 for the Baltic state stock exchanges and that of

Moscow we find recursive structures with Riga directly depending in

returns on Tallinn and Vilnius, and Tallinn on Vilnius. For volatilities

both Riga and Vilnius depend on Tallinn. In addition, we find evidence

of asymmetric effects of shocks arising in Moscow and in the Baltic states

on both returns and volatilities.

Paper [II] argues that the estimation error in Value at Risk predictors

gives rise to underestimation of portfolio risk. A simple correction is

proposed and in an empirical illustration it is found to be economically

relevant.

Paper [III] studies some approximation approaches to computing the

Value at Risk and the Expected Shortfall for multiple period asset re-

turns. Based on the result of a simulation experiment we conclude that

among the approaches studied the one based on assuming a skewed t dis-

tribution for the multiple period returns and that based on simulations

were the best. We also found that the uncertainty due to the estimation

error can be quite accurately estimated employing the delta method. In

an empirical illustration we computed five day Value at Risk's for the

S&P 500 index. The approaches performed about equally well.

Paper [IV] argues that the practise used in the valuation of the port-

folio is important for the calculation of the Value at Risk. In particular,

when liquidating a large portfolio the seller may not face horizontal de-

mandcurves. We propose a partially new approach for incorporating

this fact in the Value at Risk and in an empirical illustration we compare

it to a competing approach. We find substantial differences.

Place, publisher, year, edition, pages
Umeå: Umeå universitet, 2009
Series
Umeå economic studies, ISSN 0348-1018 ; 770
Keyword
Finance, Time series, GARCH, Estimation error, Asymmetry, Supply and demand
National Category
Economics
Research subject
Econometrics
Identifiers
urn:nbn:se:umu:diva-22200 (URN)
Public defence
2009-05-20, S312, Samhällsvetarhuset , Umeå Universitet, Umeå, 10:15 (English)
Opponent
Supervisors
Available from: 2009-04-29 Created: 2009-04-27 Last updated: 2009-04-29Bibliographically approved
2. Back on the map: essays on financial markets in the Baltic States
Open this publication in new window or tab >>Back on the map: essays on financial markets in the Baltic States
2011 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

 This thesis consists of five self-contained papers, which are all related to the financial markets in the three Baltic States, Estonia, Latvia and Lithuania.

 Paper [I] studies the impact of news from the Moscow and New York stock exchanges on the returns and volatilities of the Baltic States' stock market indices using a time series model that accounts for asymmetries in the conditional mean and variance functions. We find that news from New York has stronger e¤ects on returns in Tallinn. High-risk shocks in New York have a stronger impact on volatility in Tallinn, whereas volatility in Vilnius is more in.uenced by high-risk shocks from Moscow. Riga does not seem to be affected by news arriving from abroad.

Paper [II] suggests a nonlinear and multivariate time series model framework that enables the study of simultaneity in returns and in volatilities, as well as asymmetric effects arising from shocks and exogenous variables. The model is employed to study the three Baltic States' stock exchanges. Using daily data, we find recursive structures, with returns in Riga, directly depending on returns in Tallinn and Vilnius, and Tallinn on Vilnius. For volatilities, both Riga and Vilnius depend on Tallinn.

Paper [III] studies the link between political news, and the returns and volatilities in the Baltic States' stock markets. We find that domestic and foreign non-Russian political news led, on average, to lower uncertainty in the stock markets of Riga and Tallinn in 2001-2003. At the same time, political risk from Russia increased the volatility of the stock market in Tallinn. There is a weak relationship between political risk and the stock market volatility in the Baltic countries in 2004-2007.

Paper [IV] studies the impact of market jumps on the time varying return correlations between stock market indices in the Baltic countries. An EARJI-EGARCH model facilitating direct modeling of the time varying return correlations is introduced. The empirical results indicate that there are quite a large number of identified jumps in the emerging Baltic States' stock markets. Isolated market jumps in one of the markets generally have no or small e¤ects on the time-varying correlations. In contrast, simultaneous jumps of equal sign increase the average correlation, in some cases by as much as 100 percent.

In Paper [V] the hypothesis that financial development promotes economic growth is tested for the three Baltic countries using a time series approach that allows for interactions between the countries. We find that economic growth is a positive function of financial development, proxied by the amount of bank credit to the private sector, in the long run. The results also show that there is long run interaction between the three Baltic countries.

Place, publisher, year, edition, pages
Umeå: Umeå University, Department of Economics, 2011. 24 p.
Series
Umeå economic studies, ISSN 0348-1018 ; 820
Keyword
Financial Markets, Time series, GARCH, Asymmetry, News
Research subject
Economics
Identifiers
urn:nbn:se:umu:diva-39535 (URN)978-91-7459-142-2 (ISBN)
Public defence
2011-02-25, Samhällsvetarhuset, Hörsal C, Umeå Universitet, Umeå, 10:15 (English)
Opponent
Supervisors
Available from: 2011-02-04 Created: 2011-01-31 Last updated: 2011-02-04Bibliographically approved

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