A switching ARCH (SWARCH) model of stock market volatility: some evidence from Latin America |
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| Authors: | Giorgio Canarella Stephen K Pollard |
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| Institution: | (1) Department of Economics, University of Nevada, 4505 South Maryland Parkway, Las Vegas, NV 89154-6005, USA;(2) California State University, 5151 State University Dr., Los Angeles, CA 90032, USA |
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| Abstract: | We use the Markov regime-switching ARCH (SWARCH) model of Hamilton and Susmel (J Econometrics 64:307–333, 1994) to document the presence of high volatility regimes in six Latin American countries (Argentina, Brazil, Chile, Mexico, Peru,
and Venezuela). We found four high volatility episodes, each associated to either a local (the Mexican crisis of 1994, the
Brazilian crisis of 1998–1999, the Argentinean crisis of 2001–2002) or a worldwide financial crisis (the Asian financial crisis
of 1997). However, we found that the effects of each financial crisis are short-lived and that between 2 and 4 months after
each crisis, all markets return to low volatility regimes.
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| Keywords: | Markov regime-switching ARCH model Transition probability Student t distribution Latin American stock markets |
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