Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 725: Simultaneity and Asymmetry of Returns and Volatilities in the Emerging Baltic State Stock Exchanges

Kurt Brännäs (), Jan G De Gooijer (), Carl Lönnbark () and Albina Soultanaeva ()
Additional contact information
Kurt Brännäs: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Jan G De Gooijer: Department of Quantitative Economics, Postal: University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands
Carl Lönnbark: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Albina Soultanaeva: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: The paper suggests a nonlinear and multivariate time series model framework that enables the study of simultaneity in returns and in volatilities, as well as asymmetric effects arising from shocks and an outside stock exchange. Using daily data 2000-2006 for the Baltic state stock exchanges and that of Moscow we find recursive structures with Riga directly depending in returns on Tallinn and Vilnius, and Tallinn on Vilnius. For volatilities both Riga and Vilnius depend on Tallinn. In addition, we find evidence of asymmetric effects arising in Moscow and in Baltic state shocks on both returns and volatilities.

Keywords: Time series; nonlinear; multivariate; finance; value at risk; portfolio allocation

JEL-codes: C32; C51; G11; G12; G14; G15

19 pages, November 16, 2007

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