Stock return dynamics and stock market interdependencies

Abstract

This article compares stock return behaviour in mature and emerging stock markets. The role of leading markets and the impact of the October 1997 East Asian financial crisis are examined in the context of stock market interdependencies. An extended AR(1)-GARCH-M (autoregressive generalized autoregressive conditional heteroskedasticity) model is used. Potential price and volatility transmission mechanisms stemming from leading markets and potential structural breaks in mean and variance caused by the above crisis are discussed. Daily data covering the 16 April 1991 to 29 November 2001 period are used. The results reveal significant differences in stock return behaviour between mature and emerging markets and confirm substantial interdependencies among stock markets, originating from both leading and emerging markets.

Attitude of Investors to Capital and Money Market Investments Before and After Financial Crisis

“…This is based on effects caused by two leading stock markets and the return determination process in quite a few matured stock markets and emerging stock markets, as empirical results do not lend support to the view that stock markets function in isolation and independently. Tsouma (2007) however suggested that the origin of interdependence relationships should not be exclusively viewed in connection with the leading stock markets, but with emerging stock markets as well. There are some basic features common to all stock markets globally-whether mature or emerging stock markets groups, such as stock return level dependence on own past terms (usually relating to stock return predictability), stock return volatility dependence on past return innovations and/or on own past terms, the risk-return relationship and volatility persistence.…”

“…This is based on effects caused by two leading stock markets and the return determination process in quite a few matured stock markets and emerging stock markets, as empirical results do not lend support to the view that stock markets function in isolation and independently. Tsouma (2007) however suggested that the origin of interdependence relationships should not be exclusively viewed in connection with the leading stock markets, but with emerging stock markets as well.…”

Causality-in-variance and causality-in-mean among European government bond markets

“…While many aspects of causality-in-mean and causality-in-variance have been examined for the international equity markets (e.g. Malliaris and Urrutia, 1992;Smith et al, 1993;Kwan et al, 1995;Winnard et al, 1997;Ostermark, 1998;Alexakis and Siriopoulos, 1999;Granger et al, 2000;Caporale et al, 2002;Bessler and Yang, 2003;Bhar and Hamori, 2006;Li, 2007;Tsouma, 2007), little similar research has been conducted for the international bond markets; moreover, no paper has specifically investigated the duration over which causality is exhibited. Previous bond market studies have been limited to examining the correlation of market movements, volatility correlation, return-volatility relationships or causality-in-mean.…”

Forecasting House Prices in the United States with Multiple Structural Breaks

“…Our literature search indicates that the issue of structural break in time series data has been studied to some extent in the financial market literature, especially in the aftermath of the Asian or Russian financial crisis in 1997 and 1998, to analyze dynamic market linkages before and after the crisis. For example, see Andreou and Ghysels (2002), Ho and Wan (2002), Gerlach et al (2006), Tsouma (2007), Lucey and Voronkova (2008) in this regard. However, existing literature has not looked into the issue of structural change in house price series.…”