The use of risk and return for testing the stability of stock markets

摘要

The European CentralBank stipulates that a financial system is stable if the financial risks areevaluated and rewarded correctly and if the economic and financial shocks areabsorbed. When analyzing the return and volatility of the stock exchanges we mayascertain that a stock exchange is stable if there is a connection betweenreturn and volatility and if the shocks determined by the new positive andnegative information do not cause significant changes of the volatility. Wetook into consideration the values of the indices of stock markets from Holland(AEX), Belgium (BEL), Romania (BET), Hungary (BUX), Germany (DAX), France(CAC), Czech Republic (PX), Slovakia (SAX), Austria (ATX), Estonia (OMXT),Latvia (OMXR) and Lithuania (OMXV). In order to test the relationship betweenreturn-volatility and volatility asymmetry we estimated a GJR-GARCH-M model.The results confirm the lack of existence of a correlation between return andvolatility for the entire period under analysis and the existence of the volatilityasymmetry.