Switching Volatility in International Equity Markets

Posted: 5 Jul 1998

See all articles by Raul Susmel

Raul Susmel

University of Houston - Department of Finance

Date Written: November 1994

Abstract

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.

JEL Classification: G15, C53, C22

Suggested Citation

Susmel, Raul, Switching Volatility in International Equity Markets (November 1994). Available at SSRN: https://ssrn.com/abstract=7044

Raul Susmel (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4763 (Phone)
713-743-4789 (Fax)

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