Sudden Changes in Volatility in European Stock Markets
The question of volatility dynamics has always been the motivation of many researchers in the field of finance with objectives to ensure economic stability and to obtain higher rates of return for investors by portfolio diversification. Consequently, to financial crisis streaming, in the last few decades, a large literature has been focused on studying volatility. Hamao and al. (1991) found evidence of significant price-volatility spill over from US to London and Tokyo, and from London to Tokyo stock markets. Edwards and Naim (1998) observed a new style 'Tequila Effect' of economic crises in Latin America. A similar crisis emerged, at the end of 1997, in Thailand which was far more severe and engulfed far more countries than its predecessor. It’s bad character has been manifested by its contagion on whole region, for that reason it has been called Asian Crisis. The emergence of East Asian currency crisis in 1997 raised doubt about the lessons learned from Mexico by national and international policy makers, and economic analysts (Edwards & Naim, 1998). Then, again in 2007, the world witnessed the worst crisis in history after the Great Depression of 1929. The crisis appeared in U.S.A due to a complicated interaction of different variables, consisting principally on: 1) lower interest rates, 2) abundance of mortgage loans, 3) weak or no controls at an institutional level and an authoritative level, 4) and the use of securitization. In all the cases mentioned above, we observe lower rates of return, higher volatility, and the propagation of crisis to other stock markets, around the world, during the periods of turbulence.
Year of publication: |
2013-10-15
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Authors: | Guesmi, Khaled ; Teulon, Frédéric ; Ftiti, Zied |
Institutions: | Institut de Préparation à l'Administration et à la Gestion (IPAG) |
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