Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
1002350 | Research in International Business and Finance | 2006 | 17 Pages |
We examine correlation dynamics using daily data from 1993 to 2002 on the five largest Euro-zone stock market indices. We also study, for comparison, the correlations of a sample of individual stocks. We employ both unconditional and conditional estimation methodologies, including estimation of the conditional correlations using the symmetric and asymmetric DCC-MVGARCH model, extended with the inclusion of a deterministic time trend. We confirm the presence of a structural break in market index correlations reported by previous researchers and, using an innovative likelihood-based search, we find that the it occurred at the beginning the process of monetary integration in the Euro-zone. We find mixed evidence of asymmetric correlation reactions to news of the type modelled by conventional asymmetric DCC-MVGARCH specifications.