Research Discussion Papers, Bank of Finland
No 19/1999:
Stock Return Volatility on Scandinavian Stock Markets and the Banking Industry
Ari Hyytinen ()
Abstract: This paper investigates the evolution of the (conditional)
volatility of returns on three Scandinavian markets (Finland, Norway and
Sweden) over the turbulent period of the past decade, namely the
overlapping periods of financial liberalisation, drastically changing
macroeconomic conditions and banking crisis. We find that even over this
relatively turbulent period volatility is in most cases successfully
captured by past volatility and shocks to past volatility, ie by a
(symmetric) GARCH process. In each country banking crisis has induced
regime shifts in (unconditional) volatility. We also find evidence for
cross-country volatility spillovers during the banking crisis episodes. The
estimated volatility patterns suggest that even though the volatility of
returns was of very high magnitude during the years of banking crisis,
developments within the banking industry were not reflected in market
uncertainty until all the damage had been done and the severe problems
afflicting banks began to be realised in full.
Keywords: GARCH; conditional volatility; banking crisis; volatility spillovers; (follow links to similar papers)
26 pages, December 20, 1999
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