Modelling Returns and Volatilities During Financial Crises: a Time Varying Coefficient Approach
We examine how the most prevalent stochastic properties of key financial time series have been affected during the recent financial crises. In particular we focus on changes associated with the remarkable economic events of the last two decades in the mean and volatility dynamics, including the unde...
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Zusammenfassung: | We examine how the most prevalent stochastic properties of key financial time
series have been affected during the recent financial crises. In particular we
focus on changes associated with the remarkable economic events of the last two
decades in the mean and volatility dynamics, including the underlying
volatility persistence and volatility spillovers structure. Using daily data
from several key stock market indices we find that stock market returns exhibit
time varying persistence in their corresponding conditional variances.
Furthermore, the results of our bivariate GARCH models show the existence of
time varying correlations as well as time varying shock and volatility
spillovers between the returns of FTSE and DAX, and those of NIKKEI and Hang
Seng, which became more prominent during the recent financial crisis. Our
theoretical considerations on the time varying model which provides the
platform upon which we integrate our multifaceted empirical approaches are also
of independent interest. In particular, we provide the general solution for low
order time varying specifications, which is a long standing research topic.
This enables us to characterize these models by deriving, first, their
multistep ahead predictors, second, the first two time varying unconditional
moments, and third, their covariance structure. |
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DOI: | 10.48550/arxiv.1403.7179 |