Volatility comovements in international stock markets: effects of the global financial crisis

  • Vítor Manuel de Sousa Gabriel
  • Helena Isabel Barroso Saraiva
Keywords: emerging stock markets, volatility, extreme values, principal component analysis


This study examines the effects of the global financial crisis on the volatility of emerging stock markets. With this goal, twenty emerging stock markets have been analysed, in the period between May 2002 and December 2013. In order to estimate market volatility, the EGARCH model was implemented. In order to analyse volatility behaviour and the influence of the global financial crisis, both in the short and long-term, the extreme values test and the principal component analysis were applied. Conclusions revealed that the stock market volatility showed similar behaviours for the two time horizons, and the global financial crisis represented a key role in strengthening and deepening these similar behaviours, limiting a possible diversification strategy.


• Angabini, A. & Wasiuzzaman, S. (2011). GARCH Models and the Financial Crisis – A Study of the Malaysian Stock Market. The International Journal of Applied Economics and Finance, 5(3), 226-236.

• Bae, K., Karolyi, G. & Stulz, R. (2003). A New Approach to Measuring Financial Contagion. The Review of Financial Studies, 16, 717-763.

• Baele, L. (2005). Volatility Spillover Effects in European Equity Markets. Journal of Financial and Quantitative Analysis, 40(2), 373-401.

• Bekaert, G. & Harvey, C. (1997). Emerging equity market volatility. Journal of Financial Economics, 43, 29-77.

• Bekaert, G., Ehrmann, M., Fratzscher, M. & Mehl, A. (2011). Global Crises and Equity Market Contagion. National Bureau of Eeconomic Rerearch. Working Paper 17121. Disponível em: <http://www.nbs.rs/export/sites/ default/internet/latinica/90/90_9/Michael_ Ehrmann_wp. pdf>.

Consultado em 2015.

• Bollerslev, T., Chou, R. & Kroner, K. (1992). ARCH Modeling in Finance: A Review of the Theory and Empirical Evidence. Journal of Econometrics, 52, 5–59.

• Brooks, C. (2002). Introductory Econometrics for Finance. Cambridge: Cambridge University Press.

• Chaudhuri, K. & Klaassen, F. (2001). Have East Asian Stock Markets Calmed Down? Evidence From a Regime-Switching Model. Department of Economics Working Paper, University of Amsterdam.

• Chong, C. (2011). Effect of Subprime Crisis on U.S. Stock Market Return and Volatility. Global Economy and Finance Journal, 4(1), 102-111.

• Christiansen, C. (2003). Volatility-Spillover Effects in European Bond Markets. Working paper, Aarhus School of Business.

• Claessens. S., Dell’Ariccia, G., Igan, D. & Laeven, L. (2010). Lessons and Policy Implications from the Global Financial Crisis. IMF Working Paper N.º 10/44.

• Constantinou, E., Kazandjian, A., Kouretas, G. & Tahmazian, V. (2008). Cointegration, causality and domestic portfolio diversification in the Cyprus stock exchange. Journal of Money, Investment and Banking, 4, 26-41.

• Engle, R. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of u.k. inflaction. Econometrica, 50, 987-1008.

• Eun, C. & Shim, S. (1989). International transmission of stock market movements. Journal of Financial and Quantitative Analysis, 24, 241-256.

• Hansen, P. & Lunde, A. (2005). A forecast comparison of volatility models: does anything beat a GARCH(1,1). Journal of Applied Econometrics, 20, 873-898.

• Horta, P., Mendes, C. & Vieira, I. (2008). Contagion effects of the US Subprime Crisis on Developed Countries. CEFAGE-UE Working Paper 2008/08.

• Jansen, D. & DeVries, C. (1991). On the Frequency of Large Stock Returns: Putting Booms and Busts into Perspetive. Review of Economics and Statistics, 73, 18-24.

• Kyle, A. (1985). Continuous Auction and Insider Trading. Econometrica, 53, 1315-1335.

• Lin, C. (1996). In Stochastic Mean and Stochastic Volatility. Blackwell Publishers.

• Lin, W., Engle, R. & Ito, T. (1994): Do Bulls and Bears Move Across Borders? International Transmission of Stock Returns and Volatility. Review of Financial Studies, 7, 507-38.

• Lin, J. & Treichel, V. (2012). The Unexpected Global Financial Crisis Researching Its Root Cause, World Bank. WPS5937.

Disponível em: <http://www-wds.worldbank.org/servlet/WDS ContentServer/ WDSP/IB/2012/ 01/09/ 000158349_20120109085942/Rendered/PDF/WPS5937.pdf>. Consultado em 2015.

• Markowitz, H. (1952). Portfolio selection. Journal of Finance, 7, 77-91.

• Meric, I. & Meric, G. (1989). Potential gains from International Portfolio diversification and intertemporal stability and seasonality in international stock market relationships. Journal of Banking and Finance, 13, 627-40.

• Merton, R. (1980). On estimating the expected return on the market: an exploratory investigation. Journal of Financial Economics, 8, 323–361.

• Modi, A. e Patel, B. (2010). The Study on Co-Movement of Selected Stock Markets. International Research Journal of Finance and Economics, 47, 171-183.

• Morana, C. & Beltratti, M. (2006). Comovements in International Stock Markets. Working Paper, International Centre for Economic Research.

• Naoui, K., Khemiri, S. & Liouane, N. (2010). Crises and Financial Contagion: The Subprime Crisis. Journal of Business Studies Quarterly, 2(1), 15-28.

• Nelson, D. (1991). Conditional Heteroskedasticity in Asset Returns: A New Approach. Econometrica, 59(2), 347 – 370.

• Ng, A. (2000). Volatility Spillover Effects from Japan and the US to the Pacific Basin. Journal of International Money and Finance, 19, 207-233.

• Patev, P. & Kanaryan, N. (2003). Stock Market Volatility Changes in Central Europe Caused by Asian and Russian Financial Crises-Stock Market Volatility Changes in Central Europe. Tsenov Academy of Economics Department of Finance and Credit, Working Paper, N.º 03-01.

• Pestana, M. & Gageiro, J. (2000). Análise de Dados para Ciências Sociais: A complementaridade do SPSS. 2ª edição. Edições Sílabo: Lisboa.

• Premaratne, G. e Balasubramanyan, L. (2003). Stock market volatility: Examining North America, Europe and Asia. National University of Singapore, Economics Working Paper. Disponível em: <http://papers.ssrn. com/sol3/papers.cfm?abstract_id=375380>. Consultado em 2014.

• Raja, M. & Selvam, M. (2011). Measuring the time varying volatility of futures and options. International Journal of Applied Economics and Finance, 5, 18-29.

• Ramlall, I. (2010). Has the US Subprime Crisis Accentuated Volatility Clustering and Leverage Effects in Major International Stock Markets?. International Research Journal of Finance and Economics. Issue 39.

• Ross, S. (1989). Information and Volatility: The No-Arbitrage Martingale to Timing and Resolution Irrelevancy. Journal of Finance, 44, 1-17.

• Schwert, W. (1998). Stock Market Volatility: Ten Years After The Crash, NBER Working Paper N.º 6381.

• Toussaint, E. (2008). The US Subprime Crisis Goes Global. In Counterpunch, Weekend Edition, January 12/13.