Volatility: As a Driving Factor of Stock Market Co-movement

Volatility: As a Driving Factor of Stock Market Co-movement

Title:

Volatility: As a Driving Factor of Stock Market Co-movement

Number:

17/11

Author(s):

Ali Gencay Özbekler

Language:

English

Date:

May 2017

Abstract:

There is a strand of finance literature showing that correlation between markets increases during times of high volatility. This paper revisits this finding by comparing contribution of relative volatility to correlations between S&P 500 Index returns and global equity markets' returns before and after the Global Financial Crisis. Our results show that degree and direction of contribution of volatility to correlation has changed in some countries after the crisis. It has implications in the context of international portfolio diversification to reduce portfolio risks. In addition, introducing an extended version of contagion analysis helps to identify contagion and interdependence effects in more detail.

Keywords:

Stock markets, Market volatility, Co-movement, Spillover, Contagion, Interdependence, Portfolio risk

JEL Codes:

E44; F30; F65; G15

Volatility: As a Driving Factor of Stock Market Co-movement
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