Returns synchronization and daily correlation dynamics between international stock markets |
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| Institution: | 1. School of Banking and Finance, University of New South Wales, Sydney, NSW 2052, Australia;2. Department of Accounting and Finance, University of Strathclyde, Glasgow G4 OLN, UK;1. Management Department, Politehnica University of Timisoara, 2, P-ta. Victoriei, 300006 Timisoara, Romania;2. CRIEF, University of Poitiers, 2 rue Jean Carbonnier, 86022 Poitiers, France;3. CESD, Montpellier Business School, Montpellier, France;4. Department of Economics, IBS-Hyderabad, IFHE University, Hyderabad, India;1. Department of Finance, Lunghwa University of Science and Technology, Taiwan;2. Department of Economics and Finance, Lamar University, USA;3. Department of Banking and Finance, Tamkang University, Taiwan;1. School of Business, Central South University, Changsha 410083, China;2. Essex Business School, University of Essex, Colchester CO4 3SQ, UK;3. Southampton Statistical Sciences Research Institute, University of Southampton, Southampton, SO17 1BJ, UK |
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| Abstract: | The use of close-to-close returns underestimates returns correlation because international stock markets have different trading hours. With the availability of 16:00 (London time) stock market series, we find dynamics of daily correlation and covariance, estimated using two non-synchroneity adjustment procedures, to be substantially different from their synchronous counterparts. Conditional correlation may have different signs depending on the model and data type used. Other findings include volatility spillover from the US to the UK (and France), and a reverse spillover which is not documented before. Also, unlike previous findings, we found the increase in daily correlation is prominent only under extremely adverse conditions when a large negative return has been registered. |
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