Switching Volatility in International Equity Markets
Year: 1999
Type: preprint
Abstract: We analyze the behavior of time-varying volatility, when structural changes are allowed in international stock markets. We use a 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 model to eight series of weekly returns from international stock markets. We find evidence for switching volatility for the U.S., Canada, the U.K., and Japan. Under the SWARCH model, we find that ARCH and asymmetric effects are reduced when a switching regime structure is allowed. We use the switching model to date volatility states in international stock markets. We compare these states and conclude that domestic volatility states tend to be independent of foreign volatility states, with the exception of Japan and the U.K., and the U.S. and Canada. For these two pairs of series, we find evidence for common volatility states. JEL: C53, G15
Source: SSRN Electronic Journal
Authors: Raúl Susmel, Christian Bauer
Institution: University of Houston
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2130673467