Dynamic Stock Market Covariances in the Eurozone

Connor, Gregory and Suurlaht, Anita (2012) Dynamic Stock Market Covariances in the Eurozone. NUI Maynooth. (Unpublished)

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This paper examines the short-term dynamics, macroeconomic sensitivities, and longer-term trends in the variances and covariances of national equity market index daily returns for eleven countries in the Euro currency zone. We modify Colacito, Engle and Ghysel’s Mixed Data Sampling Dynamic Conditional Correlation Garch model to include a new scalar measure for the degree of correlatedness in time-varying correlation matrices. We also explore the robustness of the …ndings with a less model-dependent realized covariance estima- tor. We …nd a secular trend toward higher correlation during our sample period, and signi…cant linkages between macroeconomic and market-wide variables and dynamic correlation. One notable …nding is that average correlation between these markets is lower when their average GDP growth rate is lower or when more of them have negative GDP growth.

Item Type: Other
Keywords: dynamic conditional correlation; multivariate GARCH; international stock market integration; European Monetary Union;
Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
Item ID: 3748
Identification Number: N222-12
Depositing User: Ms Sandra Doherty
Date Deposited: 12 Jun 2012 14:55
Publisher: NUI Maynooth
Funders: SFI

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