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Volatility, time varying correlation and international portfolio diversification : an empirical study of Australia and emerging markets

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journal contribution
posted on 06.12.2017, 00:00 by Rakesh Gupta, Abu Mollik
This paper examines the changing correlations between the equity returns of Australia and the emerging equity markets and the tests the volatility, as a factor, that may cause the correlations to change over time. Linear regression estimates of Asymmetric Dynamic Conditional Correlation Model, which allows correlations to change, have been used to test if the volatilities of individual markets or their relative volatility causes the change in correlations. The results suggest that the correlations between Australia’s equity return and emerging markets’ equity returns, represented by the respective market index returns, change over time and the variation in correlations is influenced by the volatility of the emerging market returns. In some cases, the relative volatility of the markets, the ratio of emerging market volatility to the volatility of the Australian market, is found to influence the change in correlations. The relationship between the correlations and the volatilities is stronger in some country pairs (with Brazil, Chile, India, Malaysia and Philippines) and very weak for Sri Lanka and Turkey.

Funding

Category 1 - Australian Competitive Grants (this includes ARC, NHMRC)

History

Volume

18

Start Page

18

End Page

37

Number of Pages

20

ISSN

1450-2887

Location

Austria

Publisher

EuroJournals Inc.

Language

en-aus

Peer Reviewed

Yes

Open Access

No

External Author Affiliations

Faculty of Business and Informatics; TBA Research Institute;

Era Eligible

Yes

Journal

International research journal of finance and economics.

Exports

CQUniversity

Exports