| The log of stock price volatility is modelled as a dependent variable for 23 emerging markets. The conditional variance computed by the GARCH model estimates stock price volatility. The explanatory variables are the log of interest rate, log of the U.S. short-term Treasury bill rate, log of exchange rate, percentage change in current account, percentage change in deficit/surplus, change in consumer prices and the square of the inflation rate. In the first section of the study, this model is tested on the 23 emerging markets. Coefficients that demonstrate statistical significance are those of the log of the interest rate, the log of U.S. Treasury bill rate, the log of exchange rate, the change in consumer prices and the square of the inflation rate. In the second section of the study, a Vector Autoregressive (VAR) system of equations is constructed for all the countries with the United States added to it. A Vector Autoregressve system is run for the logs of stock price volatility for all the countries where the volatility can be computed. Statistically significant relationships are observed for the region of Latin America, the Latin American countries amongst themselves and with countries in the other regions of Europe and Asia. Not many of the countries show a statistically significant relationship with the United States. |
