Re-examining covariance risk dynamics in international stock markets using quantile regression analysis

M. Li; S. Yen

doi:10.1556/aoecon.61.2011.1.3

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Acta Oeconomica

Volume/Issue:: Volume 61: Issue 1

Re-examining covariance risk dynamics in international stock markets using quantile regression analysis

Authors:

M. Li

M. Li National Cheng Kung University, Taiwan Department of Accountancy, Graduate Institute of Finance and Banking No.1, Ta-Hsueh Road Tainan 701 Taiwan

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S. Yen

S. Yen
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Pages:: 33–59

Online Publication Date:: 05 Apr 2011

Publication Date:: 01 Mar 2011

Article Category:: Journal Article

DOI:: https://doi.org/10.1556/aoecon.61.2011.1.3

Keywords:: quantile regression; beta; CAPM; GARCH; Markov-switching; G12; G15; C53

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This investigation is one of the first to adopt quantile regression (QR) technique to examine covariance risk dynamics in international stock markets. Feasibility of the proposed model is demonstrated in G7 stock markets. Additionally, two conventional random-coefficient frameworks, including time-varying betas derived from GARCH models and state-varying betas implied by Markov-switching models, are employed and subjected to comparative analysis. The empirical findings of this work are consistent with the following notions. First, the beta smile (beta skew) curve for the Italian, U.S. and U.K. (Canadian, French and German) markets. That is, covariance risk among global stock markets in extremely bull and/or bear market states is significantly higher than in stable periods. Additionally, the Japanese market provides a special case, and its beta estimate at extremely bust state is significantly lower, not higher than that at the middle region. Second, the quantile-varying betas are identified as possessing two key advantages. Specifically, the comparison of the system with quantile-varying betas against that with time-varying betas implied by GARCH models provides meaningful implications for correlation-volatility relationship among international stock markets. Furthermore, the quantile-varying beta design in this study relaxes a simple dual beta setting implied by Markov-switching models of Ramchand — Susmel (1998) and can identify dynamics of asymmetry in betas.

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Acta Oeconomica Periodical of the Hungarian Academy of Sciences

Print ISSN:: 0001-6373

Online ISSN:: 1588-2659

Associate Editors

Péter Benczúr, Joint Joint Research Center, European Commission
Dóra Benedek, International Monetary Fund
Balázs Égert, OECD
Dániel Prinz, World Bank
Rok Spruk, University of Ljubljana, School of Economics and Business, Slovenia

Editorial Board

Anders Åslund, Georgetown University and Advisory Council of CASE, USA
István Benczes, Corvinus University of Budapest, Hungary
Agnieszka Chłoń-Domińczak, SGH Warsaw School of Economics, Poland
Fabrizio Coricelli, University of Siena, Italy
László Csaba, Corvinus University of Budapest, Hungary and Central European University, Austria
Beáta Farkas, Faculty of Economics and Business Administration, University of Szeged, Hungary
Péter Halmai, Budapest University of Technology and Economics, and National University of Public Service, Hungary
Martin Kahanec, Central European University, Austria
Michael Landesmann, The Vienna Institute for International Economic Studies (WIIW), Austria
Péter Mihályi, Corvinus University of Budapest, Hungary
Debora Revoltella, European Investment Bank

Corvinus University of Budapest
Department of Economics
Fővám tér 8 Budapest, H-1093, Hungary
E-mail: judit.kalman@uni-corvinus.hu

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Acta Oeconomica
Language	English
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