Abstract
The study focuses on the identification of stable relations between the stock markets of three geographic regions, including pre- and post-crisis periods. The paper demonstrates the applicability of the ARMA-DCC-GARCH model, allowing to provide a detailed examination of the dynamic correlation between 26 stock markets in the three regions (America, Europe and Asia) over the period of 1995-2012. We examine the volatility spillover effects and conditional correlations among the international equity markets. The country stock index is considered as an indicator of market dynamics. The results show that the US market (S&P500 index) is the main volatility transmitter worldwide, whereas the UK, German and French markets are the sources of volatility for the European developed and emerging European equity markets. However, the German DAX index, contrary to some studies, cannot be considered as a dominant one in the European region, in spite of the leadership of the German economy. The study shows that the role of “exporting volatility” or volatility transmitter belongs to the UK stock market. We also found that the US, the UK, Germany and France have a greater influence on emerging markets rather than on developed ones. Between the two markets in the North and East European region (Russia and Poland) the dominant transmitter role belongs to Russia.
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