EUROPEAN EMERGING MARKETS AND THE WORLD MARKET VOLATILITY
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This paper examines the volatility persi tence in three European emerging markets, Greece, Portugal, and Spain. Monthly value weighted index returns are computed and analyzed. A moving average TARCH model which accountsforasymmetryisestimated. Ourfindingsshowthattheasymmetricinfluenceofthepositiveandnegative news in the previous month is statistically significant in all markets but Spain. In all markets the previous months volatility has a significant effect on the volatility in the current month. All markets show high volatility persistence relative to the world market. Among the equity markets analyzed, Lisbon stock index shows the highest volatility persistence and the Spain index the lowest. Returns and systematic risk in markets ofGreece and Spain are directly related to the world market. However, Granger tests of causality suggests that there is a bi-causal relationship between the world market returns and market returns in Spain. The findings may have significant implications for portfolio diversification strategies when investing in European emerging markets.
Abstract
This paper examines the volatility persi tence in three European emerging markets, Greece, Portugal, and Spain. Monthly value weighted index returns are computed and analyzed. A moving average TARCH model which accountsforasymmetryisestimated. Ourfindingsshowthattheasymmetricinfluenceofthepositiveandnegative news in the previous month is statistically significant in all markets but Spain. In all markets the previous months volatility has a significant effect on the volatility in the current month. All markets show high volatility persistence relative to the world market. Among the equity markets analyzed, Lisbon stock index shows the highest volatility persistence and the Spain index the lowest. Returns and systematic risk in markets ofGreece and Spain are directly related to the world market. However, Granger tests of causality suggests that there is a bi-causal relationship between the world market returns and market returns in Spain. The findings may have significant implications for portfolio diversification strategies when investing in European emerging markets.