Journal
INTERNATIONAL JOURNAL OF INFORMATION TECHNOLOGY & DECISION MAKING
Volume 8, Issue 4, Pages 803-818Publisher
WORLD SCIENTIFIC PUBL CO PTE LTD
DOI: 10.1142/S0219622009003570
Keywords
Country risk; oil economy; dynamic correlation; structural break; spillovers
Categories
Funding
- Ministry of Science and Technology of P. R. China [2006BAB08B01]
- National Science Foundation of China [70531040]
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Oil economies in the Former Soviet Union (FSU) region, with geographical proximity to each other, are usually impacted by some common risk factors, which make their country risks closely correlated. This paper focuses on correlation between country risks and investigates the spillovers of country risk returns (CRR). Taking Russia and Kazakhstan for example, firstly, this paper identifies the structural breaks in CRR series, using iterated cumulative sums of squares (ICSS) algorithm. Secondly, on the assumption that there may be similarity in structural breaks of CRR series of the two countries, Vector Autoregression (VAR) process and Granger causality test are used to identify whether there are mean spillovers of CRR series. Finally, the volatility spillovers are captured by using multivariate conditional volatility models in the framework of the BEKK models. Empirical results show that (1) there are significant unidirectional mean spillovers from Russia to Kazakhstan; (2) there are asymmetric bidirectional volatility spillovers between Russia and Kazakhstan; and volatility spillover effects from Russia to Kazakhstan are stronger.
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