The effects of volatility and changes in conditional correlations in the stock markets of Russia and developed countries

The aim of this article is to identify patterns of profitability volatility and to establish the degree of dynamic conditional correlation between the stock markets of developed countries and those of Russia. This issue is important for investment strategies and the international diversification of investments. We use the BEKK-GARCH, CCC-GARCH, and DCCGARCH models and show that the correlation between the Russian stock market and the markets of the USA, UK, Germany, and France has decreased significantly in recent years. We find that while the correlation between the Russian market and the mature European markets is bidirectional, the relationship between the US market and the Russian market is unidirectional. An assessment of the transfer of volatility from all of the mature markets to the Russian market establishes its statistical significance and shows that feedback from the Russian market to the UK and German markets is insignificant. Diversification of international portfolios in the Russian market is recommended.

Stock Market Reactions to Brexit: Case of Selected CEE and SEE Stock Markets

The debate on the UK leaving the European Union is still hot and ongoing today due to many economic, political, social, and other consequences on many different countries over the world. This paper focuses on the reactions of selected Central and Eastern European (CEE) and South and Eastern European (SEE) stock markets to the Brexit vote on 23 June 2016. Using daily data for the time span from January 2010 until July 2016 and the event study methodology (ESM), the return and volatility series are being tested for significant reactions to the Brexit event. The results indicate mixed results regarding the abnormal cumulative return series, but the volatility series were found to be significantly affected by the mentioned event. This is important for international investors and gives information on the reaction of mentioned markets to big political and economic events in order to tailor international portfolios in a way to hedge from risk.

Risk-Return Dynamics of Cross-listed Stocks

Since US has been playing a leading role in global economy and technology, any major price changes in the American stock market may affect other stock markets worldwide. The American Depositary Receipts (ADRs), being the substitutes for the foreign securities, provide American investors with appealing investment opportunities to form international portfolios and to achieve the international diversification benefits. These stocks cross-listed on different exchanges not only assist corporations in raising capital abroad, but also provide a better channel for firms to search for price efficiency across the international capital markets. Consequently, the objective of this study is to examine the risk and return dynamics between ADRs and their underlying securities. The empirical results of this study indicate that the mean and volatility spillover effects and information transmission between ADRs and their underlying securities are bi-directional for the Taiwanese securities, but uni-directional (from the underlying securities to their ADRs) for the Chinese securities. Furthermore, while the international center hypothesis and the home bias hypothesis are both supported for the Taiwanese securities cross-listed in US stock markets, this study also provides evidence more in favor of the home bias hypothesis for the Chinese ADRs and their underlying securities.