Dynamic Volatility Linkages between Developed and Emerging Stock Markets: A MMV-GARCH Approach

Abstract

This paper investigates the short-run and long-run volatility linkage structures among developed and emerging stock markets using a multivariate multiplicative volatility GARCH (MMV-GARCH) model, which fulfills the assumption of a constant unconditional covariance matrix. The empirical results show that in the long-run volatility linkages, both developed and emerging markets are affected by the subprime mortgage crisis, but the developed stock markets are more sensitive to global financial perturbations. Moreover, the concern that the volatility linkages in stock markets are more significant after the subprime mortgage crisis is unfounded. In the short-run volatility linkages, the developed stock markets present stronger volatility correlation than the emerging markets.