Volatility spillover among Islamic and others Emerging stock markets

Conference Paper

, Jihed MAJDOUB, Mohamed ALI HOUFI and Nizar HARRATHI . 2011

• نوع عمل المنشور: Communication
• اسم المؤتمر: First Middle East North Africa Meeting on Financial & Fiscal Policies, Economic Growth, and Integration in MENA Region, Sousse- TUNISIA
• تاريخ المؤتمر: الخميس, آيار (مايو) 5, 2011

مستخلص المنشور

This paper proposes two types of stochastic correlation structures for Multivariate Stochastic Volatility models, such as the constant correlation (CC) and dynamic correlation (DC) models. Both structures can be used for purposes of determining optimal portfolio and risk diversification strategies through the use of correlation matrices for Islamic and emerging countries to forecast optimal capital charges. A technique is developed to estimate the DC model using the maximum of likelihood, The DC model is also estimated using six sets of empirical data, namely XU100 Index for Turkey market, JKSE Index for Indonesian market, EGX30 index for Egyptian market, IPC index for Mexican market, Schang Comp index for Chinese market and Bovespa Index for Brazilian market. The study found significant dynamic correlations between Islamic and emerging market volatility cross. The Dynamic Conditional Correlation (DCC)model is also estimated, and is found to be far less sensitive to the covariation in the shocks to the indexes. The correlation process for the DCC model also appears to have a unit root, and hence constant conditional correlations in the long run. In contrast, the estimates arising from the DC model indicate that the dynamic correlation process is stationary