Modeling financial market volatility in transition markets: a multivariate case

Abstract

This paper presents evidence of equity market linkages in the following transition economies: Russia, Ukraine, Poland and Czech Republic from beginning of January 2005 till the end of December 2014. I apply a multivariate asymmetric EGARCH model. Empirical results indicate significant return and volatility spillover effects during the full sample, the “Great Recession” and Ukrainian political crisis episodes. Over the full sample period, there is evidence of return co-movements, and strong volatility persistence. During the “Great Recession” subsample, the own-return effects of the markets are stronger than the cross-market effects and their correlations have increased. Finally, the Ukrainian political crisis indicated no clear information producer, whereas, evidence of returns co-movement still exists. The markets in question are mainly partially integrated and the volatility transmission linkages across them are not that strong in crises periods, thus confirming previous literature on the particularities of emerging and frontier markets.