Economic Analysis: Theory and Practice
 

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Dynamic correlations between the stock market indices of developed countries and the Russian stock market index

Vol. 18, Iss. 11, NOVEMBER 2019

Received: 25 September 2019

Received in revised form: 7 October 2019

Accepted: 25 October 2019

Available online: 29 November 2019

Subject Heading: ANALYSIS OF FINANCIAL CAPITAL

JEL Classification: G15, G17

Pages: 2103–2124

https://doi.org/10.24891/ea.18.11.2103

Salmanov O.N. University of Technology (UNITECH), Korolev, Moscow Oblast, Russian Federation
olegsalmanov@yandex.ru

https://orcid.org/0000-0002-5167-748X

Subject The article addresses the issue of interconnection of stock markets of developed countries and the Russian stock market. It is important for investment strategies and international diversification of investments.
Objectives It investigates dynamic correlations and causal relationship between developed markets and the Russian market.
Methods The study employs BEKK-GARCH, ССС-GARCH and DCC-GARCH models to measure the dynamic conditional correlations between the Russian stock market and developed markets, using the yield data of SP500 (US), FTSE 100 (United Kingdom), DAX 30 (Germany), CAC 40 (France), RTSI (Russia).
Results The correlation between the Russian stock market and the markets of the USA, Great Britain, Germany and France are decreasing over time. The most significant decline occurred with the U.S. market. The correlation between the U.S. market and the Russian market is less than that of developed European markets. There is no transfer of shocks from Russia to the United States. The impact of volatility in developed countries is much greater on the current volatility of the Russian market, rather than the opposite.
Conclusions Taking into account that correlation with the markets of developed countries has significantly decreased since 2014, after the imposition of sanctions, it is possible to diversify international portfolios at the Russian market profitably.

Keywords: stock market, correlation, BEKK-GARCH model, volatility, DCC-GARCH model

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