Risk Management Analysis: An Empirical Study Using Bivariate GARCH
This study employs a bivariate asymmetric GARCH
model to reveal the hidden dynamics price changes and volatility
among the emerging markets of Thailand and Malaysian after the
Asian financial crisis from January 2001 to December 2008. Our
results indicated that the equity markets are sharing the common
information (shock) that transmitted among each others. These
empirical findings are used to demonstrate the importance of shock
and volatility dynamic transmissions in the cross-market hedging and
market risk.
[1] C.S. Tai, "Market integration and contagion: evidence from Asian
emerging stock and foriegn excahnge markets," Emerging Markets
Reivew, 8, pp. 264-283, 2007.
[2] A.C. Johansson, "Interdependencies among Asian bond markets,"
Journal of Asian Economics, 19, pp. 101-116, 2008.
[3] T.C. Chiang, B.N. Jeon & H.M. Li, "Dynamic correlation analysis of
financial contagion: evidence from Asian markets," Journal of
International Money and Finance, 26, pp. 1206-1228, 2007.
[4] T. Bollerslev, R.F. Engle and J.M. Wooldridge, "A Capital Asset
Pricing Model with Time-Varying Covariances," Journal of Political
Economy, 96, pp.116-131, 1988.
[5] T. Bollerslev, "Modeling the coherence in short-term nominal exchange
rates: A multivariate generalized ARCH approach," Review of
Economics and Statistics, 72, pp.498-505, 1990.
[6] R.F. Engle, V. Ng and M. Rothschild, "Asset pricing with a Factor-
ARCH covariance structure: Empirical estimates for Treasury bills,"
Journal of Econometrics, 45, pp.213-237, 1990.
[7] Baba, Y., Engle, R.F., Kraft, D.F. and Kroner, K.F., 1990, Multivariate
Simultaneous Generalized ARCH. Department of Economics,
University of California, San Diego, Mimeo.
[8] R.F. Engle and K.F. Kroner, "Multivariate Simultaneous Generalized
ARCH," Econometric Theory, 11, pp.122-150, 1995.
[9] R.E. Engle, "Dynamic conditional correlation: a simple class of
multivariate generalized autoregressive conditional heteroskedasticity
models," Journal of Business and Economic Statistics, 20, pp. 339-350,
2002.
[10] P. Jorion, Value-at-risk: The New Benchmark for Managing Financial
Risk. New York, McGraw-Hill, 2000.
[11] D. Baur, Econometric Analysis of Financial and Economic Time Series,
Vol.1, Flexible dynamic correlation model, Amsterdam: Emerald, 2006,
pp. 3-31.
[12] Y.K. Tse, "A test for constant correlations in a multivariate GARCH
model," Journal of Econometric, 98, pp.107-127, 2000.
[13] L., Glaosten, R., Jagannathan, and D., Runkle, "On the relation between
expected value and the volatility of the nominal excess return on stock,"
Journal of Finance, 48, pp.1779-1801, 1993.
[14] K.F. Kroner and V.K. Ng, "Modeling Asymmetric Comovements of
Asset Returns," Review of Financial Studies, 11(4), pp. 817-844, 1998.
[15] D.W. Marquardt, "An Algorithm for Least Squares Estimation of
Nonlinear Parameters," Journal of the Society for Industrial and
Applied Mathematics, 11, pp. 431-441, 1963.
[16] E. Berndt, B. Hall, B., R. Hall and J. Hausman, "Estimation and
Inference in Nonlinear Structural Models," Annals of Economic and
Social Measurement, 3, pp. 653-665, 1974.
[17] T. Bollerslev, "A Conditional Heteroskedastic Time Series Model for
Speculative Prices and Rates of Return," Review of Economics and
Statistics, 69, pp. 542-547, 1987.
[18] K.F. Kroner, and J. Sultan, "Time Varying Distribution and Dynamic
Hedging with Foreign Currency Futures," Journal of Financial and
Quantitative Analysis, 28, pp. 535-551, 1993.
[19] J.L. Urrutia, "Tests of random walk and market efficiency for Latin
American emerging markets," Journal of Financial Research, 18, pp.
299-309, 1995.
[20] M.H. Miller, J. Muthuswamy and R.E. Whaley, "Mean reversion of
Standard and Poor 500 index basis changes: Arbitrage-induced or
statistical illusion?," Journal of Finance, 49, pp. 479-513, 1994.
[21] C. Brunetti and C. Cilbert, "Bivariate FIGARCH and fractional
cointegration," Journal of Empirical Finance, 7, pp. 509-530, 2000.
[1] C.S. Tai, "Market integration and contagion: evidence from Asian
emerging stock and foriegn excahnge markets," Emerging Markets
Reivew, 8, pp. 264-283, 2007.
[2] A.C. Johansson, "Interdependencies among Asian bond markets,"
Journal of Asian Economics, 19, pp. 101-116, 2008.
[3] T.C. Chiang, B.N. Jeon & H.M. Li, "Dynamic correlation analysis of
financial contagion: evidence from Asian markets," Journal of
International Money and Finance, 26, pp. 1206-1228, 2007.
[4] T. Bollerslev, R.F. Engle and J.M. Wooldridge, "A Capital Asset
Pricing Model with Time-Varying Covariances," Journal of Political
Economy, 96, pp.116-131, 1988.
[5] T. Bollerslev, "Modeling the coherence in short-term nominal exchange
rates: A multivariate generalized ARCH approach," Review of
Economics and Statistics, 72, pp.498-505, 1990.
[6] R.F. Engle, V. Ng and M. Rothschild, "Asset pricing with a Factor-
ARCH covariance structure: Empirical estimates for Treasury bills,"
Journal of Econometrics, 45, pp.213-237, 1990.
[7] Baba, Y., Engle, R.F., Kraft, D.F. and Kroner, K.F., 1990, Multivariate
Simultaneous Generalized ARCH. Department of Economics,
University of California, San Diego, Mimeo.
[8] R.F. Engle and K.F. Kroner, "Multivariate Simultaneous Generalized
ARCH," Econometric Theory, 11, pp.122-150, 1995.
[9] R.E. Engle, "Dynamic conditional correlation: a simple class of
multivariate generalized autoregressive conditional heteroskedasticity
models," Journal of Business and Economic Statistics, 20, pp. 339-350,
2002.
[10] P. Jorion, Value-at-risk: The New Benchmark for Managing Financial
Risk. New York, McGraw-Hill, 2000.
[11] D. Baur, Econometric Analysis of Financial and Economic Time Series,
Vol.1, Flexible dynamic correlation model, Amsterdam: Emerald, 2006,
pp. 3-31.
[12] Y.K. Tse, "A test for constant correlations in a multivariate GARCH
model," Journal of Econometric, 98, pp.107-127, 2000.
[13] L., Glaosten, R., Jagannathan, and D., Runkle, "On the relation between
expected value and the volatility of the nominal excess return on stock,"
Journal of Finance, 48, pp.1779-1801, 1993.
[14] K.F. Kroner and V.K. Ng, "Modeling Asymmetric Comovements of
Asset Returns," Review of Financial Studies, 11(4), pp. 817-844, 1998.
[15] D.W. Marquardt, "An Algorithm for Least Squares Estimation of
Nonlinear Parameters," Journal of the Society for Industrial and
Applied Mathematics, 11, pp. 431-441, 1963.
[16] E. Berndt, B. Hall, B., R. Hall and J. Hausman, "Estimation and
Inference in Nonlinear Structural Models," Annals of Economic and
Social Measurement, 3, pp. 653-665, 1974.
[17] T. Bollerslev, "A Conditional Heteroskedastic Time Series Model for
Speculative Prices and Rates of Return," Review of Economics and
Statistics, 69, pp. 542-547, 1987.
[18] K.F. Kroner, and J. Sultan, "Time Varying Distribution and Dynamic
Hedging with Foreign Currency Futures," Journal of Financial and
Quantitative Analysis, 28, pp. 535-551, 1993.
[19] J.L. Urrutia, "Tests of random walk and market efficiency for Latin
American emerging markets," Journal of Financial Research, 18, pp.
299-309, 1995.
[20] M.H. Miller, J. Muthuswamy and R.E. Whaley, "Mean reversion of
Standard and Poor 500 index basis changes: Arbitrage-induced or
statistical illusion?," Journal of Finance, 49, pp. 479-513, 1994.
[21] C. Brunetti and C. Cilbert, "Bivariate FIGARCH and fractional
cointegration," Journal of Empirical Finance, 7, pp. 509-530, 2000.
@article{"International Journal of Business, Human and Social Sciences:56926", author = "Chin Wen Cheong", title = "Risk Management Analysis: An Empirical Study Using Bivariate GARCH", abstract = "This study employs a bivariate asymmetric GARCH
model to reveal the hidden dynamics price changes and volatility
among the emerging markets of Thailand and Malaysian after the
Asian financial crisis from January 2001 to December 2008. Our
results indicated that the equity markets are sharing the common
information (shock) that transmitted among each others. These
empirical findings are used to demonstrate the importance of shock
and volatility dynamic transmissions in the cross-market hedging and
market risk.", keywords = "multivariate ARCH, structural change, value at risk.", volume = "4", number = "7", pages = "1704-7", }
