The effect of dynamic relationship between domestic market and world market on stock returns volatility

• Published in: IOP conference series. Earth and environmental science 2019-05, Vol.255 (1), p.12052
• Main Authors: Najmudin, Kurniasih, R, Sulistyandari, Jati, D P
• Format: Article
• Language: English
• Subjects: Autoregressive models; DCC; Domestic markets; dynamic relationship; Economic crisis; GARCH; Pricing; Return on investment; returns volatility; Stock exchanges; stock market; Volatility
• ISSN: 1755-1307; 1755-1315; 1755-1315
• DOI: 10.1088/1755-1315/255/1/012052

The purpose of this study is to analyze the effect of dynamic relationship between domestic market and world market on stock returns volatility. To test this purpose, we use generalized autoregressive conditional heteroscedasticity (GARCH) model. In addition, dynamic relationship between domestic market and world market was measured by the dynamic conditional correlation (DCC) model. While conditional variance as measure for stock returns volatility was generated from variance equation of GARCH(p,q) procedure. The daily market indices data and their stocks prices over period from 01:01:2003 to 30:12:2016 were taken from China, Philippines, and world stock markets. Furthermore, the causality effect was also analyzed during the global financial crisis for period of 01:03:2008 to 31:03:2009. As the result, this study empirically suggests that the dynamic relationship between each domestic market and world market has a positive effect on stocks returns volatility. This evidence occurs in both overall sample period and during the global financial crisis period.