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Volatility in Emerging Stock Markets

Published online by Cambridge University Press:  06 April 2009

Reena Aggarwal ,
Carla Inclan  and
Ricardo Leal
Reena Aggarwal
Affiliation:
Aggarwal and Inclan, School of Business, Georgetown University, Washington D.C. 20057
Carla Inclan
Affiliation:
Aggarwal and Inclan, School of Business, Georgetown University, Washington D.C. 20057
Ricardo Leal
Affiliation:
COPPEAD, Rio de Janeiro, Brazil.
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Abstract

This study examines the kinds of events that cause large shifts in the volatility of emerging stock markets. We first determine when large changes in the volatility of emerging stock market returns occur and then examine global and local events (social, political, and economic) during the periods of increased volatility. An iterated cumulative sums of squares (ICSS) algorithm is used to identify the points of shocks/sudden changes in the variance of returns in each market and how long the shift lasts. Both increases and decreases in the variance are identified. We then identify events around the time period when shifts in volatility occur. Most events tend to be local and include the Mexican peso crisis, periods of hyperinflation in Latin America, the Marcos-Aquino conflict in the Philippines, and the stock market scandal in India. The October 1987 crash is the only global event during the period 1985–1995 that caused a significant jump in the volatility of several emerging stock markets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 34 , Issue 1 , March 1999 , pp. 33 - 55
Copyright
Copyright © School of Business Administration, University of Washington 1999

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