Switching Volatility In International Equity Markets

Download or read book Switching Volatility in International Equity Markets written by Raul Susmel and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we analyze the behavior of time-varying volatility, when structural changes are allowed in international stock markets. We use a recent model developed by Hamilton and Susmel (1994), the SWARCH model, which is a more general specification than the popular ARCH model. We fit an exponential SWARCH (E-SWARCH) model to eight series of weekly returns from international stock markets. Under the SWARCH model, we find that ARCH and asymmetric effects are significantly reduced. We also find, however, that when compared to a standard GARCH-t model, the benefits of a SWARCH model are marginal. Using the ability of the Hamilton (1989) filter to date states, we use the switching model to date volatility states. We compare these states and conclude that with the exception of Japan and the U.K., and the U.S. and Canada, the domestic volatility states tend to be independent of foreign volatility states. For these two pairs, we find evidence for common volatility states.