Identifying Asymmetric Comovements of International Stock Market Returns

Abstract

Based on a new approach for measuring the comovements between stock market returns, we provide a nonparametric test for asymmetric comovements in the sense that stock market downturns will lead to stronger comovements than market upturns. The test is used to detect whether asymmetric comovements exist in international stock markets. We find the following empirical facts. First, asymmetric comovements exist between the United States (U.S.) stock market and the stock markets for Canada, France, Germany, and the United Kingdom (U.K.), but the data are unable to reject the null hypothesis of the symmetric comovements between the U.S. and Japanese stock markets. Second, either a larger negative drop or a positive increase in stock prices leads to stronger comovements of stock market returns, indicating that comovements in the data are different from comovements implied by a bivariate symmetric distribution, which implies that comovements tend to zero as the market returns become more positive or more negative. JEL classification: G150, G19, F210, C490 Bank classification: Financial stability; Financial system regulation and policies; International topics; Econometric and statistical methods RésuméProposant une nouvelle approche en matière de mesure des covariations entre les rendements boursiers, l'auteur applique un test non paramétrique en vue d'établir si les covariations entre les marchés boursiers internationaux sont asymétriques, en l'occurrence, plus prononcées en phase de baisse qu'en phase de hausse des marchés. Il fait les constats empiriques suivants. D'abord, il existe des covariations asymétriques entre le marché boursier des États-Unis et ceux du Canada, de la France, de l'Allemagne et du Royaume-Uni, mais les données ne permettent pas de rejeter l'hypothèse nulle de symétrie des covariations entre le marché boursier des États-Unis et celui du Japon. Ensuite, plus la diminution ou la montée des cours boursiers est importante, plus les covariations entre les rendements boursiers sont fortes. Ce résultat est contraire à celui qu'implique une distribution symétrique bivariée, à savoir que les covariations tendent vers zéro lorsque les rendements boursiers deviennent très positifs ou très négatifs.

Analyzing Dependence Structure of Equity, Bond and Money Markets by Using Time-Varying Copulas

“…6, No. 3;2014 estimated Gaussian copula correlations between the three markets are different from their linear correlations in Table 1. Specifically, the correlation between the equity market and bond market is approximately 0.08, decreased by 3.2 % as compared to its linear correlation.…”

“…6, No. 3;2014 peaked and have fatter tails than normal distribution. Intuitively, all se-ries show excess kurtosis, ranging from 4.7 to 104.5, in which the Australian money market series displays the highest kurtosis.…”

“…6, No. 3;2014 the Australian equity and bond futures contracts, the switchover only occurs on the last day of trading of the old futures contract, whereas for the Australian money market, it was 30 days out from the last trading day of the expiring contract. Panel A of Tables 1 and 2 provides descriptive statistics of daily returns of the equity, bond and money markets in Australia and the US.…”

“…With this objective, copula models have been used in recent empirical finance literature. Their use dates back to 1999 in Embrecht et al (1999), Ane and Kharoubi (2003), Hu (2006), Patton (2006), Choudhury and Bhatti (2006), Turgutlu and Ucer (2007), Li (2010), Nguyen and Bhatti (2012), Aldel and Salma (2012) amongst others.…”

Interdependence and asymmetries: Latin American ADRs and developed markets

“…On the other hand, in the volatility spillovers, the skewness was relevant just in what occurs between France and the United Kingdom. Several empirical studies also found the existence of asymmetric co-movements in international capital markets of developed countries, such as Koutmos & Booth (1995), Li (2014), among others. Nevertheless, contrary to this study results, some studies found this effect between developing and developed markets - Pagán & Soydemir´s (2001) and Rejeb & Arfaoui´s (2016) identified this phenomenon specifically between the countries of Latin America.…”