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The impact of stock market jumps on time-varying return correlations: empirical evidence from the Baltic countries
Umeå University, Faculty of Social Sciences, Umeå School of Business.
Umeå University, Faculty of Social Sciences, Department of Economics.
2010 (English)In: Umeå Economic Studies, ISSN 0348-1018, no 816Article, review/survey (Other academic) Published
Abstract [en]

In this paper we study 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 modelling of the time varying return correlations is introduced. The empirical results indicate that there is a quite large number of identi…ed jumps in the emerging Baltic stock markets. The main …nding is that 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 with as much as 100 percent

Place, publisher, year, edition, pages
2010. no 816
Keyword [en]
Correlated jumps, contagion
Research subject
Economics
Identifiers
URN: urn:nbn:se:umu:diva-39501OAI: oai:DiVA.org:umu-39501DiVA: diva2:393063
Note
fulltexten får publiceras/MEAvailable from: 2011-01-28 Created: 2011-01-28 Last updated: 2011-02-04Bibliographically approved
In thesis
1. 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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Hellström, JörgenSoultanaeva, Albina
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Citation style
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